ADB retains India’s GDP forecast at 6.4% for FY2023

Manila-based global financial institution Asian Development Bank (ADB) has retained economic growth forecast for India in FY2023 (ending 31 March 2024) at 6.4% and 6.7% in FY2024, as projected in its report released in April 2023, considering “normal rainfall” and other weather factors, and no further “geopolitical shocks”.

ADB says consumption demand in India is expected to "recover", with improvement in both rural and urban demand. Indicators like consumer confidence, urban unemployment, and motorbike sales also seem to suggest so, says ADB's Outlook Report for July 2023 released today.

ADB in its forecast for Asia and the Pacific has also maintained its growth outlook for developing economies at 4.8% this year, as “robust domestic demand” continues to support the region’s recovery.

In India, ADB thinks, investment growth will remain "robust", underpinned by "strong" bank credit growth and demand for housing, and supported by fewer interest rate hikes by the Reserve Bank.

However, the global economic slowdown has suppressed merchandise trade, which will be a drag on India's growth, ADB flags. On the supply side, it says, India's growth will be buoyed by manufacturing as input prices cool. The service PMI has remained above 60, indicating resilient growth in the sector, the report adds.

On inflation, ADB says India is expected to see slightly lower inflation at 4.9% in FY2023 as compared to 5% projected in April. For FY2024, India's headline inflation is projected at 4.5%.

"As food and oil prices moderated, inflation eased below the 6.0% upper bound of the monetary policy target. 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," says the ADB report.

Notably, the RBI in its last monetary policy meeting cut India's inflation projection for FY24 to 5.1% and retained the 6.5% GDP growth forecast. The real GDP growth for 2023-24 is projected at 6.5% with Q1 at 8%, Q2 at 6.5%, Q3 at 6%, and Q4 at 5.7%, while CPI inflation in Q1 FY24 is projected at 4.6%, Q2 at 5.2%, Q3 at 5.4% and Q4 at 5.2%.

In South Asia, ADB has downgraded growth forecasts for economies like Nepal and Pakistan amid tight monetary and fiscal policies, and maintained forecasts for FY2024. For Bangladesh, growth is estimated higher than forecast for fiscal 2023, says ADB.

Inflation in developing Asia is forecast at 3.6% this year, compared with an April forecast of 4.2%. The inflation outlook for 2024, meanwhile, is raised to 3.4% from an earlier estimate of 3.3%. For South Asia, the 2023 inflation forecast is kept at 8.1%, and the 2024 projection is revised up markedly to 6.4%. “Asia and the Pacific continue to recover from the pandemic at a steady pace,” says ADB Chief Economist Albert Park.

On China, ADB says the reopening of China is bolstering the region’s growth, and the country's economy is projected to expand 5% in 2023, unchanged from the April forecast, amid strong domestic demand in the services sector.