Asian Development Bank has said in its outlook that South Asia is on course to achieve the April growth forecasts. However, it has made downward revisions for Nepal and Pakistan in 2023. It reflects chiefly tighter monetary and fiscal policies and are offset by an upward revision for Bangladesh as net exports performed better than expected. Growth projections elsewhere in South Asia are largely maintained.

The Indian economy, supported by upbeat domestic demand, is set to meet earlier projections, the outlook says. In fiscal year 2023(FY2023, ending 31 March 2024), consumption demand in India is expected to recover with improvement in both rural and urban demand as reflected in such indicators as consumer confidence, urban unemployment, and motorbike sales.

Investment growth in India will remain robust, underpinned by strong bank credit growth and demand for housing, and supported by fewer interest rate hikes by the central bank. However, the global economic slowdown has suppressed merchandise trade, which will be a drag on growth, ADO July 2023 said.

On the supply side, growth will be buoyed by manufacturing as input prices cool. The service PMI has remained above 60, indicating resilient growth in the sector. Assuming normal rainfall and other weather factors, and no further geopolitical shocks, India is expected to grow by 6.4% in FY2023 and 6.7% in FY2024, as projected in ADO April 2023.

One of the bases of ADO July 20, 2023 forecast is the indicator emanating from seasonally adjusted Manufacturing Purchasing Mangers’ Indexes, according to which India’s position had improved from 55.4 in January 2023 to 58.7 in May. However, it has suffered in June to 57.8. Improvement has been seen in every month from January to May.

Growth in GDP in South Asia was estimated at 6.7 per cent in 2022, while India’s GDP grew by 7.2 per cent. Economic growth in the region then declined to 5.5 per cent as per the April assessment and remained at this level in July also. Deceleration was also witnessed in India which declined to 6.4 per cent by April but maintained this level of growth as per the assessment of the second quarter in July 20, 2023.

As for inflation in South Asia is concerned, there is likely to be only a little relief in 2023, since it was forecast at 8.1 per cent for 2023 only a little less than 8.2 per cent in 2022. For India, ADO estimated a considerable relief, which was estimated at 6.7 per cent in 2022, but has declined to 5 per cent in April and 4.9 per cent in July.

As food and oil prices moderated, inflation eased below the 6.0% upper bound of the monetary policy target of RBI. 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 in India.

Risk factors for Indian economy are obvious for other reasons too, which included economic activity in major advanced economies that remained weak as monetary tightening took hold. GDP growth in the United has slowed from 2022, while the euro area contracted for a second consecutive quarter and thus entered a technical recession, with leading economic activity indicators suggesting continued weakness. Further, the exports and industrial activities in developing Asia continue to decelerate as global demand slows.

One of the risks is interest rate hikes as part of taming inflation. However, it has now begun to slow the global economy. Investment is likely to weaken further, as suggested by continued contraction in the manufacturing PMI. Retail sales have remained relatively steady since the beginning of the year, but some signs of weaker consumer confidence materialized in quarter 2, which is likely to slow consumption growth.

There are many domestic and external risks to India economy, which include food inflation, unstable rupee, large current account deficit, and uncertain economic and political developments globally. The world economy is projected to slow down due to three major factors – Russia Ukraine War, economic slowdown in China and monetary tightening in the US – through which India needs to navigate with great caution. Within the country, India needs to effectively manage the climate challenges to agricultural production, along with supply of money in the market to boost consumption. Labour market, with unprecedented unemployment rate, need urgent attention to deal with cost of living crisis that has of late taken the country in its grip.(IPA Service)