The Asian Development Bank (ADB) has slashed its growth projection for India for 2023-24 sharply from 7.2% estimated earlier to 6.4%, attributing the cut to the global economic slowdown, tight monetary conditions, and persistently elevated oil prices.
While domestic consumption demand is likely to stay healthy, private investment growth is likely to be lower this year due to high lending rates and moderating optimism on business conditions, the Bank cautioned.
The Bank’s Asian Development Outlook released on Tuesday pegged real GDP growth in 2022-23 at 6.8% and said growth will inch back up to 6.7% in 2024-25.
The ongoing recovery in China and healthy domestic demand in India will be the main growth support pillars for the entire region through this year and next, the Outlook noted.
Between 2015 and 2019, India’s contribution to GDP growth in Developing Asia was 22% while China’s contribution was 53%, ADB estimates suggest.
“The People’s Republic of China still accounts for about half of the region’s growth, but its contribution will decline,” it said.
India’s contribution to developing Asia’s growth is expected to rise to 27% by 2024-25 from an estimated 25% in 2023-24, with China’s impact slipping from 51% this year to 46% by 2024-25.
“This rapid growth [for India] reflects healthy domestic consumption, which will be further boosted by the tax cuts and exemptions in February’s Union Budget. Because of the more limited role of exports in the economy, India will be less affected by the slowdown in advanced economies,” the Outlook predicted.
“South Asia will remain the best-performing sub-region this year, driven by robust growth in India which should register high growth both this year and next year,” Abdul Abiad, director of ADB’s macroeconomic research division said at a briefing. “In contrast, we forecast growth to slow in Pakistan and a contraction in Sri Lanka,” he added.
While private investment is expected to falter this year, public consumption this year is “likely to grow only slowly, as central government expenditure shifts toward investment”, ADB said.
“Inflation will be on a downward trend as global price pressures moderate. Improving states’ financial management is necessary to increase needed public investment,” it stressed, adding that growth will be buoyed again in 2024-25 “by private consumption and investment as the global economy improves”.
