Inflation has turned out to be more persistent than expected, and led to a sharp tightening in monetary policy. (AFP image)
Chennai: The Asian Development Bank on Wednesday lowered its growth forecast for India for 2022-23 to 7 per cent from 7.2 per cent estimated earlier, as inflation is expected to adversely impact domestic consumption while sluggish global demand and elevated oil prices are likely to be a drag on exports. ADB also lowered India's growth estimate for FY24 to 7.2 per cent from 7.8 per cent.
The economy grew strongly in the quarter ending March, 21 2022. But the forecasts for GDP growth for both FY23 and FY24 are revised down from earlier projections in April due to global economic headwinds. Inflation has turned out to be more persistent than expected, and led to a sharp tightening in monetary policy.
Headline inflation has continued to breached the monetary policy target of 2–6 per cent on food price increases and pressures from rising global oil and commodity prices following the Russian invasion of Ukraine. ADB expects inflation in India to be higher than earlier forecast, averaging 6.7 per cent in FY23 and moderating to 5.8 per cent in FY24 as demand pressures from strengthening economic activity are tamped down by easing supply bottlenecks.
Given the elevated inflation rate, rising global financial pressures due to monetary tightening in the US, and heightened global uncertainty, the RBI terminated its accommodative monetary policy stance in May. This was accompanied by an increase in the policy rate by 140 basis points over 4 months to contain inflationary expectations.
The slowdown in global growth and high oil prices will hurt India’s export prospects in FY23. Imports grew by 47.9 per cent in the first 4 months of 2022, outpacing exports, up by 18.5 per cent. Rising global oil prices and the depreciating rupee increased the value of imports.