ADB retains India's growth forecast at 6.4% for current fiscal

The Asian Development Bank (ADB) on Wednesday retained India's economic growth forecast at 6.4 per cent for FY24 on recovery in consumption demand in both rural and urban areas, but said suppressed exports due to global slowdown will be a drag.

The Indian economy grew 7.2 per cent in 2022-23.

In an update to its Asian Development Outlook (ADO), ADB lowered its inflation projection for current fiscal year (FY24) at 4.9 per cent, from 5 per cent pegged in April, on softening crude oil prices, even though it estimated core inflation to remain “stubbornly high”.

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“Assuming normal rainfall and other weather factors, and no further geopolitical shocks, India is expected to grow by 6.4 per cent in FY2023 (current fiscal) and 6.7 per cent in FY2024, as projected in ADO April 2023,” ADB said.

In current fiscal year, consumption demand in India is expected to recover with improvement in both rural and urban demand as reflected in such indicators as consumer confidence, urban unemployment, and motorbike sales.

Investment growth will remain robust, underpinned by strong bank credit growth and demand for housing, and supported by fewer interest rate hikes by the central bank.

“However, the global economic slowdown has suppressed merchandise trade, which will be a drag on growth. On the supply side, growth will be buoyed by manufacturing as input prices cool,” ADB said in its July update to the outlook for Asia.

With regard to inflation, ADB said as food and oil prices moderated, inflation eased below the 6 per cent upper tolerance level of the monetary policy.

Retail inflation has remained above 6 per cent for most part of 2022. As per latest data, it was 4.81 per cent in June 2023.

“Expected softening of Brent crude prices in 2023 should lower headline inflation, but core inflation, which excludes food and fuel, is expected to be stubbornly high,” ADB said.

It further said that developing economies in Asia and the Pacific are expected to grow at 4.8 per cent in 2023, as robust domestic demand continues to support the region's recovery. Inflation is expected to continue falling, approaching pre-pandemic levels as fuel and food prices decline.

The growth forecast for 2024 is marginally revised down to 4.7 per cent from a 4.8 per cent estimate in April, as demand for the region's exports of electronics and other manufactured goods is slowing, ADB said.

China's economy is projected to expand 5 per cent in 2023, unchanged from the April forecast, amid strong domestic demand in the services sector. In 2024, China's GDP is projected to grow 4.5 per cent.

“Asia and the Pacific continues to recover from the pandemic at a steady pace,” said ADB Chief Economist Albert Park.

“Domestic demand and services activity are driving growth, while many economies are also benefiting from a strong recovery in tourism. However, industrial activity and exports remain weak, and the outlook for global growth and demand next year has worsened,” Park added.