On Thursday, the Asian Development Bank (ADB) cut India’s growth forecast for FY23 to 7.2% from 7.5% earlier, citing higher-than-expected inflation since April and subsequent monetary tightening by the central bank.

The Manila-based multilateral development bank also raised its inflation forecast for India to 6.7% in FY23 from 5.8%.

ADB said in its latest Asian Development Outlook Supplement: “While consumer confidence continues to improve, higher-than-expected inflation will erode consumers’ purchasing power. The impact may be offset by cuts in excise taxes, fertiliser and gas subsidies provision, and the expansion of free food distribution programmes”.

India’s GDP growth slowed to 4.1% in the third quarter of fiscal 2022 as private consumption growth “disappointed” and manufacturing contracted.

The ADB said that private investment would slow as corporate borrowing costs rise as the RBI continues to raise policy rates to curb inflation.

“Despite the rupee depreciation, net exports will contract as weaker global demand and a rise in the real effective exchange rate weaken export competitiveness,” it added.

The ADB said higher commodity prices would boost the mining sector on the supply side. “But manufacturing companies will bear higher input costs due to higher oil prices. The services sector, which has been hit hard by COVID-19 since 2020, will do well in FY23 and beyond as economies open up and travel resumes. Even so, Growth for FY24 is still revised down to 7.8% (previously estimated at 8%),” it said.

In its latest economic outlook survey released separately on Thursday, industrial group Ficci cut its median GDP growth forecast by 6.5% to 7.3% from 7.4% in April, citing geopolitical and its impact on the Indian economy.

“The Indian economy is also not immune to global volatility, as evidenced by rising inflationary pressures and heightened uncertainty in financial markets. Participants noted that these factors are affecting India’s economic outlook and that recovery may be delayed,” it said.

Key risks to India’s economic recovery include higher commodity prices, supply disruptions, and a dim outlook for global growth as the conflict in Europe continues, Ficci said.

“A slowdown in China is also expected to impact growth in India. Rising input costs are hurting discretionary spending as these are passed on to end consumers through higher selling prices,” it added.