The Asian Development Bank retained India’s 7.3% growth forecast for FY19 even as it noted a “steeper than anticipated” slowdown to 7.1% in the second quarter from 8.2% in the April-to-June quarter.
According to the Asian Development Outlook Supplement, the decline was mainly from weak food prices dampening rural consumption, higher oil prices delivering a negative shock in terms of trade and rising raw material costs.
Growth forecasts of 7.3% for the year ending March 2019 and 7.6% for the next financial year are retained despite some downside risks, the ADB said.
Tighter credit as the non-bank finance sector experiences stress, limited fiscal space for public capex and escalating trade tensions were seen as among the risks, some of which could be offset by decline in oil prices and by exports becoming more competitive on a weaker rupee, which has fallen 10% since the beginning of 2018 even after a recent rebound, it said.
“India is maintaining growth momentum on rebounding exports and higher industrial and agricultural output,” the ADB said in its assessment. Robust domestic demand is expected to help developing Asia weather external headwinds, the ADB said, retaining its growth projections at 6% for 2018 and 5.8% for 2019. “A truce between China and the US provides temporary respite from new tariffs, but the unresolved trade conflict remains the foremost risk to forecasts,” it said.