-Private investment will soften due to higher cost of borrowing for firms, says development bank’s outlook
-The Indian economy is expected to expand 7% in fiscal 2022/23, slower than a previous estimate of 7.4% and the central bank’s 7.2% projection, according to a survey by India’s leading industry body.
New Delhi / Mumbai, NFAPost: The Asian Development Bank (ADB) on Thursday slashed its growth forecast for India to 7.2 per cent for FY23 from 7.5% estimated earlier citing higher than anticipated inflation since April and subsequent monetary tightening by the central bank.
The Manila-based multilateral development bank also raised its inflation forecast for India to 6.7 per cent for FY23 from 5.8% projected earlier.
“Although consumer confidence continues to improve, higher-than-expected inflation will erode consumer purchasing power. Some of the impact 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 program,” ADB said in its latest Asian Development Outlook supplement.
India’s GDP growth moderated to 4.1% in the March quarter of FY22 on “disappointing” growth in private consumption and a contraction in manufacturing.
ADB said private investment will 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. “Net exports will shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee,” it added.
About the supply side, ADB said higher commodity prices will boost the mining industry. “But manufacturing firms will bear the brunt of higher input costs due to rising oil prices. The services sector, hit hard by COVID-19 since 2020, will do well in FY23 and beyond as the economy opens up and travel resumes. Even so, growth in Fy24 is revised down to 7.8 per cent (from 8 per cent estimated earlier),” it said.
Industry group Ficci in its latest Economic Outlook Survey released separately on Thursday reduced the median GDP growth forecast to 7 per cent from 7.4% estimated in April—within a range of 6.5 per cent to 7.3%–blaming geopolitical uncertainty and its repercussions for the Indian economy.
“Indian economy is not immune to global volatility, as is evident from the deepening inflationary pressures and increasing uncertainty in financial markets. The participants pointed out that these factors are exerting pressure on India’s economic prospects and are likely to delay the recovery,” it said.
Ficci said major risks to India’s economic recovery include rising commodity prices, supply-side disruptions, bleak global growth prospects with the conflict prolonging in Europe. “A slowdown in the Chinese economy is also expected to have an impact on India’s growth. Increased input cost is impairing discretionary spending as these get passed on to the final consumer through higher selling prices,” it added.
India’s FY23 growth forecast cut to 7%, RBI to stay hawkish: FICCI
The Indian economy is expected to expand 7% in fiscal 2022/23, slower than a previous estimate of 7.4% and the central bank’s 7.2% projection, according to a survey by India’s leading industry body.
The Federation of Indian Chambers of Commerce and Industry’s (FICCI) quarterly survey, released on Thursday, said the war in Ukraine is likely to keep inflation high and dent consumer demand.
The Reserve Bank of India (RBI) was expected to stay hawkish to tackle elevated inflation, the survey of top independent economists, showed.
“CPI is anticipated to remain above the RBI’s tolerance band till the third quarter of FY2022-23 and may come within the tolerance level only after the fourth quarter,” the FICCI said in a press statement.
Annual consumer inflation has remained above the RBI’s 2%-6% tolerance band for six straight months to June, prompting economists in the survey to predict the RBI will hike the repo rate further to 5.65% by the end of the fiscal year in March 2023.
Most market participants expect the RBI to raise the repo rate by 50 basis points at its next policy review on August 4, following a similar-sized hike to 4.90% last month.
“Major risks to India’s economic recovery include rising commodity prices, supply-side disruptions, bleak global growth prospects with the conflict prolonging in Europe,” the industry body said.
A slowdown in China, one of India’s biggest trade partners, would likely hurt exports and emerge as a crucial headwind, it added.
Morgan Stanley also lowered its forecast for India’s fiscal 2022/23 growth to 7.2% from 7.6% earlier this week, citing weakening global trade.
Agencies
