On July 21, 2022, the Asian Development Bank (ADB) in its ‘Asian Development Outlook (ADO) Supplement, July 2022’ downgraded its economic growth forecast for India to 7.2% for 2022-23 (FY23) from 7.5% amid higher-than-expected inflation and monetary tightening. For FY24 also, it lowered the GDP (Gross Domestic Product) growth estimate to 7.8% from the 8% estimated earlier.
- Meanwhile, the inflation forecast for India increased to 6.7% from the 5.8% estimated earlier for FY22, and the inflation projection for FY23 was raised from 5% to 5.8%.
- India’s retail inflation, measured by the Consumer Price Index (CPI), is hovering at more than 7% and is expected to remain elevated in the coming months.
i.High inflation has declined consumer purchasing power.
ii.Private investment would soften due to the higher cost of borrowing for firms as the Reserve Bank of India (RBI) continues to raise policy rates to contain inflation.
- The RBI’s monetary policy committee hiked the repo rate by 90 basis points in two consecutive months, May (an off-cycle policy review) and June, raising the repo rate to 4.9%.
iii.Net exports will shrink due to subdued global demand and a rising real effective exchange rate
iv.The rupee touched an all-time low of 80.06 against the dollar on July 20, 2022.
v.The domestic currency has depreciated about 7.5% against the greenback in 2022 so far.
vi.On the supply side, higher commodity prices will boost the mining industry but manufacturing firms will bear the brunt of higher input costs due to rising oil prices.
vii.The services sector, hit hard by covid-19 since 2020, will do well in FY2022.
viii.India will continue to surpass China which is expected to grow by 4% in 2022 as against the earlier estimate of 5%. In 2023 also, China is expected to grow by 4.8%.
For the South Asian region, it has lowered the growth forecast from 7.4% to 7.1% for 2023, mainly due to the economic crisis in Sri Lanka, high inflation and associated monetary tightening in India.
i.Developing Asia is now projected to grow more slowly: 4.6% in 2022 and 5.2% in 2023.
ii.Owing to higher energy and food prices, inflation forecasts are revised up from 3.7% to
4.2% for 2022, and from 3.1% to 3.5% for 2023.
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FICCI downgrades India’s GDP Growth Forecast for FY23 to 7%
The Federation of Indian Chambers of Commerce and Industry (FICCI) in its latest round of Economic Outlook Survey (July 2022)/ Quarterly Survey projected Indian annual median GDP growth forecast at 7% in FY23, lower than a previous estimate of 7.4% in April 2022.
- India’s minimum and maximum growth estimate is 6.5% and 7.3% respectively.
- This decline is also due to the high inflation amid the Ukraine-Russia War which reduced consumer demand.
i.RBI is expected to keep a hawkish stance to tackle elevated inflation.
ii.CPI based inflation in India stood at 7.01% during June 2022, the sixth consecutive month when the inflation remained above the RBI’s tolerance limit of 6%.
iii.RBI will hike the repo rate further to 5.65% by the end of the fiscal year in March 2023.
iv.Annual consumer inflation has remained above the RBI’s 2%-6% tolerance band for six straight months to June.
v.India’s GDP grew 8.7% for FY22.
vi.Morgan Stanley also lowered its forecast for India’s FY23 growth to 7.2% from 7.6% earlier this week, citing weakening global trade.
The survey was conducted in June where economists were asked to provide forecasts for key macroeconomic variables for FY23 and for Q1 FY23 and Q2FY23.
Recent Related News:
i.The global rating agency Moody’s, in its Global Macro Outlook 2022-23, has cut down India’s economic growth forecast to 8.8% for the calendar year 2022.
ii.The United Nations Department of Economic and Social Affairs (UN-DESA) in its ‘World Economic Situation And Prospects (WESP) Mid-year Update 2022’ has declined India’s GDP (Gross Domestic Product) growth projections from 6.7% to 6.4% for 2022-23.
About Asian Development Bank (ADB):
President– Masatsugu Asakawa
Members– 68 Nations (49 are from within Asia and the Pacific and 19 outside)
Headquarters– Mandaluyong City, Metro Manila, Philippines