The Asian Development Bank (ADB) has adjusted India’s Gross Domestic Product (GDP) projection for the fiscal year 2022-2023, reducing it by one percentage point to 6.3% from the previous estimate of 6.4%. This downward revision is attributed to slowing exports and the potential impact of erratic rainfall on agricultural output.
However, the GDP projection for the current fiscal year, 2023-2024, remains steady at 6.7%. This stability is expected due to the anticipated growth driven by rising private investment and increased industrial output.
According to the Asian Development Outlook for September 2023, India’s growth in the remainder of this fiscal year and the next is expected to be fueled by robust domestic consumption as consumer confidence improves and substantial investments, including significant government capital expenditure.
ADB’s assessment of the Indian economy indicates that “slowing exports could foment headwinds for the economy, and erratic rainfall patterns are likely to undermine agricultural output, leading to the marginal revision down to 6.3% for FY2023.”
Various factors pose risks to this outlook, including global geopolitical tensions, which could introduce economic uncertainty and potentially trigger a surge in global food prices. Additionally, weather-related shocks during the kharif season (July-October) or the October-April Rabi season could further disrupt agricultural growth.
On a positive note, ADB suggests that economic growth may surpass expectations in FY25 if foreign direct investment inflows increase, particularly in the manufacturing sector, as multinational corporations diversify their supply chains by including India as a production location.
The report also addresses inflation trends, noting that inflation in India has moderated from 6.7% in 2022 to 5.5% in 2023. It attributes this moderation to a spike in food prices. However, the forecast for FY2023-2024 has been slightly raised due to the same food price spike. The projection for FY2024-2025 is marginally lower, primarily due to moderating core inflation.
ADB’s forecast takes into account government policy actions aimed at reducing inflation, including export restrictions on certain rice varieties, export duties on other rice types, the maintenance of buffer stocks of pulses and onions, the removal of import duties on pulse imports, and the introduction of a new fuel subsidy for cooking gas.
In addition to India, ADB has also lowered its economic growth forecast for developing Asia to 4.7% this year, down from the previous estimate of 4.8%. China’s growth is expected to be around 4.9% this year, slightly slower than previously anticipated.
ADB’s Chief Economist, Albert Park, emphasizes that “Developing Asia continues growing robustly, and inflation pressures are receding.” Some central banks in the region have already started lowering interest rates, which is expected to stimulate further economic growth.
