The Asian Development Bank (ADB) has marginally lowered its growth projection for the Indian economy to 9.7% in 2021-22, from 10% estimated in September.
The bank has cited the lower than expected 8.4% growth in the July to September quarter and expects supply chain factors such as chip shortages and rising semiconductor prices to continue to suppress growth. This was evident, it pointed out, in a double-digit contraction in motor vehicle sales in October and in GST e-way bills generated in November.
“In India, a strong 20.1% growth rebound in Q1 of fiscal year 2021 (FY2021, ending 31 March 2022) was followed in Q2 by growth moderation to 8.4%, marginally below expectations as a chip shortage hindered the production and sale of automobiles and many electronic goods,” the bank said in its Asian Development Outlook Supplement released on Tuesday.
In April, the ADB had projected an 11% growth for India in 2021-22. The bank has retained its forecast for 2022-23, when it expects growth to moderate to 7.5% ‘as domestic demand normalises’.
It expects inflation to rise in India from an average of 5.5% for the full year estimated earlier, to 5.6%. While inflation in the first seven months of 2021-22 averaged 5.2%, some pressure is expected to build as chip shortages drive up semiconductor prices, it said.
“The projection for the whole year is increased marginally to 5.6%,” the bank's economists said in Tuesday's supplement. The Reserve Bank of India has estimated retail inflation to be 5.3% over the year.
South Asia’s GDP forecast has been lowered to 8.6% from 8.8% in September, due to the moderation in India’s growth estimate and the slower than anticipated growth in manufacturing.
However, the ADB said other economies in South Asia have gained from higher global demand and rebounding domestic activity. “Economies elsewhere in South Asia look to be on track for previously projected recovery,” it noted.
Pakistan, for instance, has seen a bump up in cotton and sugarcane production with favourable weather, while services have bounced back as mobility tracking measures recovered beyond pre-pandemic levels.
Sri Lanka and Maldives are also performing better than expected earlier, with tourist arrivals rising 139.3% to cross one million in the latter during January to October 2021.
“The inflation projection for South Asia is revised up from 5.8% to 5.9% in 2021 and from 5.1% to 5.3% in 2022 on the expectation that global prices for food and other commodities remain elevated and as domestic factors come into play in specific economies,” the ADB concluded.