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ADB cuts India's GDP growth forecast for FY23 to 7% on high inflation, monetary tightening

The Asian Development Bank has also lowered the growth forecast for FY24 by 80 basis points to 7.2 percent

September 21, 2022 / 12:07 PM IST
GDP

GDP


The Asian Development Bank (ADB) has cut its GDP growth forecast for India by 50 basis points to 7 percent for the current financial year ending in March 2023.

Commenting in an update to its Asian Development Outlook report, the ADB said that elevated commodity prices, including those of oil, and domestic inflation will force Indian monetary policy to continue to tighten. This would hurt growth in the short run, the ADB said.

"Weaker than expected global demand over the next 2 years will also adversely affect exports and growth, despite the structural reforms

being undertaken by the government. Nevertheless, the economy is expected to grow strongly over the forecast horizon, with investment playing a catalytic role," the ADB said in its report, released on September 21.

For the next financial year ending in March 2024, the ADB has cut its GDP growth forecast for India by an even larger 80 basis points to 7.2 percent.

The ADB's revised forecast for FY23 is now slightly lower than the Reserve Bank of India's (RBI) estimate of 7.2  percent, although economists see the possibility of the Indian central bank lowering the number at the conclusion of the next meeting of the Monetary Policy Committee, scheduled for September 28-30.

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A downward revision in the RBI's growth forecast has been expected ever since the statistics ministry said in late August that India's economy expanded by 13.5 percent in April-June - not only lower than the 15 percent predicted by economists in a Moneycontrol poll but also the 16.2 percent growth the Indian central bank had expected.

In the update to its outlook report, the ADB today said it expects Indian inflation to ease in FY24 to 5.8 percent, which would be only 20 basis points lower than the 6 percent upper bound of the RBI's mandate tolerance range.

"Even though supply pressures are expected to ease in FY24, upward pressure on inflation could continue because of demand-side pressures caused by increasing economic activity," the ADB said.

The downward revision in India's growth forecast was one of the primary reasons behind the ADB lowering its expectations for South Asian growth, which is now seen at 6.5 percent in 2022, down from 7 percent previously.

Meanwhile, East Asia is now seen growing 3.2 percent in 2022, sharply lower than the 4.7 percent projcted earlier, mainly on account of weakness in the Chinese economy.

"The PRC's (People's Republic of China) economy is now expected toexpand by 3.3 percent in 2022 rather than the 5.0 percent forecast earlier as the lockdowns from the zero-COVID strategy, problems in the property sector, and weaker external demand continue weighing on economic activity," the ADB said.
Moneycontrol News
first published: Sep 21, 2022 11:06 am
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