The Manila-based organisation revised its growth forecast for the current year downwards to 6.4% from 7.2% projected earlier.
“Despite the global slowdown, India’s economic growth rate is stronger than in many peer economies and reflects relatively robust domestic consumption and lesser dependence on global demand,” said ADB country director for India Takeo Konishi on Tuesday.
For 2024-25, it projects growth to bounce back to 6.7%, driven by private consumption and investment. “The government of India’s strong infrastructure push under the prime minister’s Gati Shakti initiative, logistics development, and industrial corridor development will contribute significantly to raising industrial competitiveness and boosting future growth,” Konishi noted.
The report lauded the government’s commitment to fiscal prudence while budgeting higher capital investment in the coming year. It further indicated that recovery in tourism and contact-intensive sectors would help service sector growth. ADB expects manufacturing to take off only from 2024-25.
Consequently, goods exports are expected to improve from next year as production-linked incentive schemes and efforts to improve the business environment, such as streamlined labour regulations, improved performance in electronics and other areas of manufacturing growth,start bearing fruit.
As per latest projections, current account deficit is expected to narrow to 2.2% this year and further to 1.9% on the back of solid service export performance.
ADB noted that geopolitical tensions and weather-related shocks were key risks to India’s outlook.
On the inflation front, ADB pointed out that inflation will decline to 5% in 2023-24 and further to 4.5% in the next year, based on the assumption that food and oil prices remain low. Oil prices rose on Monday as OPEC and other economies instituted a surprise production cut.
While ADB expects tighter monetary policy to persist in the current fiscal, it said that the accommodation would only take place next fiscal. The Reserve Bank of India is expected to raise rates by 0.25 percentage points to 6.75% on April 6.
ADB raised concerns about states’ quality of expenditure and off-budget borrowings. It said states had not followed the Centre’s approach of increasing infrastructure and health expenditure.
Asian outlook
The opening of China is a “brightening outlook” for Asia and the global economy, ADB indicated. It expects growth to return to pre-pandemic levels in the coming year. While India is expected to slow down, ADB’s forecast indicates a rise in growth for developing Asia to 4.8% in 2023 from 4.2% in the previous year.
But the report also noted that economies were not out of bounds as financial stability risks and escalation of the Russia-Ukraine conflict could still hold back recovery.
