The Asian Development Bank has reduced India’s Gross Domestic Product estimate for the current financial year 2022-23 to 7.2 per cent from its earlier projection of 7.5 per cent, citing higher-than-expected inflation will erode consumers’ purchasing power.
“India’s GDP growth moderated to 4.1 per cent in Q4 of the fiscal year 2021 (FY2021, ended 31 March 2022) on disappointing growth in private consumption and a contraction in manufacturing. India has been hit by the Omicron COVID-19 variant and the economic impact of the war in Ukraine,” it said in its latest report.
For the financial year that ended in May, the growth has been revised to 8.7 per cent from 8.9 per cent. “Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power. Some of the impacts of this may be expected to slow in the second half because the government needs to delay some of its public sector investment program due to limited fiscal space,” it said.
The Indian government has reprioritized spending to cover higher subsidies for food and fuel, and other subsidies and transfers, due to sharp increases in global oil and food prices because of the war in Ukraine, it said. For the entire South Asia region. the growth forecast has been revised down from 7.0 per cent to 6.5 per cent for 2022 and from 7.4 per cent to 7.1 per cent for the next fiscal year.
“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. The growth prospects for the subregion’s other economies are largely unchanged as various positives balance out global headwinds,” it said. “Private investment will soften due to the higher cost of borrowing for firms as the RBI continues to raise policy rates to contain inflation. Net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee,” it said.
Taking that into consideration, India’s growth during the next fiscal is revised down to 7.8 per cent from its earlier estimate of 8.0 per cent.