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BENGALURU : The Asian Development Bank on Thursday cut its economic growth forecast for India to 7.2% for 2022-23 from 7.5% estimated in April because of higher-than-expected inflation and monetary tightening. It also lowered the GDP growth estimate for 2023-24 to 7.8% from the 8% estimated earlier.

It, however, raised the inflation forecast for India to 6.7% for FY23 from the 5.8 % estimated 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 programme," it said.

ADB added that private investment would soften due to the higher cost of borrowing for firms as the 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%.

ADB, in the supplementary outlook, also said that net exports would shrink due to subdued global demand and a rising real effective exchange rate eroding export competitiveness despite a depreciating rupee.

The rupee touched an all-time low of 80.06 against the dollar on Wednesday. The domestic currency has depreciated about 7.5% against the greenback in 2022 so far.

On the supply side, higher commodity prices will boost the mining industry, said the report. “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 FY2022 and beyond as the economy opens up and travel resumes. Even so, growth in FY2023 is revised down to 7.8%," said ADB.

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.

“A worsening fallout from the war in Ukraine could lead to a further surge in global energy and commodity prices, with likely knock-on effects on growth and inflation in developing Asia," the bank warned.

ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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