New Delhi : The Asian Development Bank (ADB) on Wednesday slashed the growth forecast for India’s economy to 7 per cent for the fiscal year 2022-23. Earlier, the bank had projected the growth rate to go up to 7.2 percent.
ADB releases monthly forecast reports in April every year. At that time it was projected that the Indian economy would grow at 7.5 per cent in FY 2022-23 and 8 per cent in FY 2023-24. It was further cut in July and the revised estimates projected the growth rate to be 7.2 per cent and 7.8 per cent, respectively. Now that reduced revised estimate has been further reduced.
The ADB has downgraded its growth forecast in view of the potential for an adverse impact on the economy due to rising inflation domestically as well as globally and interest rate hikes issued by the central bank to mitigate it. According to its report, which looks at Asian economies, India registered a growth rate of 13.5 per cent in the first quarter of FY 2022-23, driven by strong performance in the services sector. However, in the future, domestic food prices will have the effect of reducing consumption by consumers. ADB also feared an impact on exports due to lower global demand for goods and services and rise in mineral oil prices.
Reasons given for the decline in growth rate:
* After Russia’s invasion of Ukraine, rising prices of mineral oil and commodities and supply constraints have resulted in increased inflation globally.
* Adverse weather factors such as heat waves in some parts of the country and heavy rains in others are fueling inflation.
* Retail inflation rose to 7 per cent in August, still above the RBI’s tolerance level. Prices of cereals and vegetables remain high.
* RBI has increased the repo rate by 140 basis points since March, making credit more expensive.
* Fall in global demand, depreciation of rupee against dollar and rising imports are likely to widen the trade deficit.
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