Even as inflation is rising across the world, central banks are following monetary tightening and global uncertainty is looming amid the Russia-Ukraine war, two major bodies, Asian Development Bank (ADB) and Federation of Indian Chambers of Commerce, and Industry (FICCI), on Thursday slashed their growth forecasts for the Indian economy for FY23. The ADB has cut its GDP growth forecast to 7.2 per cent now from 7.5 per cent earlier, while FICCI now projects India to grow at a lower 7 per cent than the 7.4 per cent 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,” the ADB said in its latest Asian Development Outlook report.
The multilateral development bank, which is based in Manila, also revised upwards its inflation forecast for India to 6.7 per cent for the current financial year, from the 5.8 per cent projected earlier.
The Reserve Bank of India (RBI) projects India’s GDP growth at 7.2 per cent for the current financial year 2022-23.
The FICCI, in its quarterly survey report, also said, “The 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 is likely to delay the recovery.”
It added that 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.
FICCI said the latest round of survey, which has been released on Thursday (July 21), was conducted in June and drew responses from leading economists representing industry, banking and financial services sectors. The economists were asked to provide forecasts for key macroeconomic variables for the year 2022-23 and for the quarters Q1 (April-June) of FY23 and Q2 (July-September) of FY23.
India’s gross domestic product (GDP) grew 8.7 per cent for the full financial year 2021-22. For the March 2022 quarter, the growth stood at 4.1 per cent. The economic growth had witnessed a contraction of 6.6 per cent in the previous financial year 2020-21.
The Consumer Price Index (CPI)-based inflation in India stood at 7.01 per cent during June, the sixth consecutive month when the inflation remains above the RBI’s tolerance limit of six per cent. However, this is the second consecutive month that has seen a slight easing in inflation as compared to the previous month. The inflation in April had stood at 7.79 per cent, which fell to 7.04 per cent in May and now to 7.01 per cent in June.
FICCI also said economists cited that the RBI is expected to maintain a hawkish stance throughout the calendar year 2022. “the policy repo rate is forecasted at 5.65 per cent by the end of the fiscal year 2022-23, with a minimum and maximum range of 5.50 per cent and 6.25 per cent, respectively.”