ADB cuts India GDP forecast for FY23 to 7.2 pc on Covid

New Delhi: Asian Development Bank (ADB) on Thursday trimmed India’s economic growth forecast for current fiscal year to 7.2 percent from 7.5 percent as pandemic and war impact is weighing down alongside inflationary pressures.

India, however, will continue to surpass China which is expected to grow by 4 percent in 2022 as against the earlier estimate of 5 percent. In 2023 also, China is expected to grow by 4.8 percent.

In April, the Manila-headquartered multilateral funding agency had forecast the Indian economy to grow by 7.5 percent.

China grew by 8.1 percent in 2021, as against 8.7 percent economic growth recorded by India during the fiscal 2021-22.

For India, ADB also revised downwards the economic growth in fiscal ended March 2022 to 8.7 percent from 8.9 percent estimated earlier.

“India has been hit by the omicron COVID-19 variant and the economic impact of the war in Ukraine. Consequently, GDP growth for FY2021 is revised down from 8.9 percent to 8.7 percent and from 7.5 percent to 7.2 percent for FY2022 (fiscal to be ending in March 2023).

“Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power,” ADB said in its supplement to the Asian Development Outlook (ADO) for 2022 released on Thursday.

Some of the impacts of this may be offset by a cut in excise duties, provision of fertilizer and gas subsidies, and extension of a free food distribution programme.

Private investment will soften due to higher cost of borrowing for firms as the RBI continues to raise policy rates to contain inflation.

For South Asian region — which includes India — it has lowered the growth forecast from 7 percent to 6.5 percent for 2022 and from 7.4 percent to 7.1 percent for 2023, mainly due to economic crisis in Sri Lanka and high inflation and associated monetary tightening in India.

South Asia’s economy is expected to expand less than ADO 2022’s projection. This mainly reflects a modest downward revision to India’s forecast GDP growth due to higher-than anticipated inflation since April and monetary tightening, and Sri Lanka’s sharp GDP contraction due to the country’s sovereign debt and balance-of-payment crises.

Bangladesh, Maldives, Nepal, Pakistan are the other countries in South Asia.

For India, it said net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee.

On supply side, higher commodity prices will boost mining industry. But manufacturing firms will bear the brunt of higher input costs due to rising oil prices.

The services sector, hit hard by COVID-19 since 2020, will do well in FY2022 and beyond as the economy opens up and travel resumes.

“The economic impact of the pandemic has declined across most of Asia, but we are far from a full and sustainable recovery,” said ADB Chief Economist Albert Park.

On top of the slowdown in the PRC (People’s Republic of China), fallout from the war in Ukraine has added to inflationary pressure that’s causing central banks around the world to raise interest rates, acting as a brake on growth.

It’s crucial to address all these global uncertainties, which continue to pose risks to the region’s recovery, Park said.

On India’s inflationary outlook, ADB said for FY2022 it is revised up from 5.8 percent to 6.7 percent on higher-than-expected oil prices. The inflation projection for FY2023 is raised from 5 percent to 5.8 percent.

On China, ADO said, in addition to lockdown-induced weakness in household consumption, a further burden on the PRC’s economy is that housing market has not stabilised. Average new home prices in 70 major cities fell by 0.8 percent year-on-year in May 2022, despite a reduction in the mortgage-rate floor for first-home buyers and a cut of 15 basis points in the 5-year loan prime rate in May.

“With household demand hit by recent COVID-19 outbreaks, adding to the ongoing stress in the property market, the growth forecast for the PRC is revised down by 1 percentage point to 4 percent in 2022,” said the ADO Supplement.