ADB Cuts India's GDP Growth Forecast To 6.3% For This Year; Sees Inflation At 5.5%

The Asian Development Bank (ADB) has lowered its GDP growth forecast for India by 1 percentage point to 6.3% for 2023 compared to the previous 6.4%. Despite trimming the economy's growth rate, ADF still sees India driving South Asia to becoming the fastest-growing sub-region. For the year 2024, ADB kept its GDP growth estimates unchanged at 6.7% for the country.

In its Asian Development Outlook September 2023 report, ADB said that public investment in India remains robust and will continue to drive growth there. Domestic demand is similarly strong in other economies in the region, as economic activity continues to normalize after the pandemic.

Further, it added that a small downward revision is made for South Asia for 2023, to 5.4% from 5.5%. Nevertheless, South Asia will still be the fastest-growing subregion, led by India.

It said, "The forecast for the subregion is marginally revised down to 5.4% and 6.0% for this year and next from April's 5.5% and 6.1%. This outlook is driven by India- which accounts for 80% of the subregion's economy- where growth for fiscal year (FY) 2023 will remain high at a forecast 6.3%, albeit a tad lower than April's 6.4% projection."

According to ADB, strong private consumption, and upticks in public and private investment, are expected to brighten India's outlook.

In regards to the consumer price index, core inflation remains well above pre-pandemic averages in the Caucasus and Central Asia, East Asia (excluding the PRC), and South Asia-and this, along with still-high food inflation, has kept headline inflation higher than the pre-pandemic average in these subregions. ADB's report added, " In India, food inflation picked up again in July due to bad weather, which also pushed up South Asia's inflation rate."

Also, ADB pointed out that if agricultural production in India weakens and the export ban on rice is maintained, it could add pressure to food price inflation in developing Asia.

Thereby, ABD revised its inflation forecast for India to 5.5% for this year compared to the previous estimate of 5.4%. However, inflation is seen to decelerate to 4.2% in 2024, which would be near the RBI's target of 4% for the CPI.

In the first quarter of FY24, India's expanded to 7.80%. The growth is driven by the services sector coupled with consumer demand and a rise in government capital expenditure. Meanwhile, gross value added (GVA) at basic prices came in at 7.8% in the first quarter, as against 11.9% a year ago same period. However, the Q1FY24 GDP data is still lower than the 8% growth rate expected by RBI in the quarter.