Asian Development Bank (ADB) has lowered the economic growth forecast for India for current fiscal year to 7.2 per cent, with the impacts of Covid-19 and Russia-Ukraine war getting exacerbated by high inflation.
In April, the multilateral funding agency had forecast the Indian economy to grow by 7.5 per cent.
It also revised downwards the economic growth in fiscal ended March 2022 to 8.7 per cent from 8.9 per cent estimated earlier.
India’s GDP (Gross Domestic Product) growth moderated to 4.1 per cent in Q4 of fiscal year ended March 2022 on disappointing growth in private consumption and a contraction in manufacturing, ADB said in its supplement to the Asian Development Outlook (ADO) for 2022.
“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 per cent to 8.7 per cent and from 7.5 per cent to 7.2 per cent for FY2022 (fiscal to be ending in March 2023).
“Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power,” ADO Supplement released on Thursday said.
Some of the impacts of this may be offset by a cut in excise duties, the provision of fertilizer and gas subsidies, and the extension of a free food distribution programme, 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.
For the South Asian region, it has lowered the growth forecast from 7 per cent to 6.5 per cent for 2022 and from 7.4 per cent to 7.1 per cent for 2023 mainly due to the economic crisis in Sri Lanka and high inflation and associated monetary tightening in India.
“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.