ADB Lowers India Growth Forecast Amid Weak Global Demand, High Inflation

NEW DELHI  — The Asian Development Bank (ADB) has lowered its 2022 economic growth outlook for India, amid sluggish global demand and tightening of monetary policy to manage inflationary pressures from elevated prices for oil and other commodities.

ADB forecasts growth of 7.0% for fiscal year (FY) 2022 (ending 31 March 2023) in an update of its flagship economic publication, Asian Development Outlook (ADO) 2022. That compares with a projection of 7.5% in April. The growth outlook for 2023 is also revised down to 7.2% from 8.0%.

“While India’s gross domestic product (GDP) is steadily closing in on its pre-pandemic trend level, economic growth in the near term is likely to be affected by the global slowdown and high inflation,” said ADB Country Director for India Takeo Konishi. “We expect that the government’s continued efforts to improve the regulatory climate for businesses and infrastructure will boost investment and create more jobs in the medium term.”

Inflation is forecast to remain elevated over the next 2 years, averaging 6.7% in FY2022 before moderating to 5.8% in FY2023. High inflation has led India’s central bank, the Reserve Bank of India, to increase policy rates, thereby raising the cost of borrowing.

Inflationary pressures will crimp private consumption. However, subsidized fertilizer and gas, free food distribution, and excise duty cuts will help offset some of the impacts of high inflation on consumers.

The services sector is expected to remain buoyant due to the lifting of COVID-19 restrictions. However, the manufacturing sector is expected to grow slower because of rising input costs. Agriculture value-added is likely to be marginally lower, as the sown area has declined, and the monsoon remains uneven. A slowdown in global growth will result in sluggish exports, while the value of imports is likely to increase.

Investment growth is likely to be led by public rather than private investment, with the government’s capital expenditure budgeted at a record 2.9% of GDP. Increased borrowing costs for the government, due to rising policy rates, will accentuate fiscal pressure until FY2023 along with the cost of subsidies that include minimum-support prices for farmers, the free food distribution program, fertilizer and gas subsidies, and excise duty cuts on petrol and diesel. India’s current account deficit may widen to 3.8% of GDP in FY2022 due to rising imports and a slowdown in exports. The deficit is expected to narrow to 2.1% of GDP in FY2023 as oil and other import prices moderate.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region.