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The Asian Development Bank (AfDB) has sharply cut its growth projection for India for 2023-2024 from a previously estimated 7.2% to 6.4%, attributing the reduction to the global economic slowdown, tight monetary conditions and persistently high oil prices.

While domestic consumer demand is expected to remain healthy, private investment growth is expected to be weaker this year due to high lending rates and subdued optimism about business conditions, the Bank warned.

The Bank’s Asia Development Outlook released on Tuesday pegs real GDP growth in 2022-23 at 6.8% and indicates growth will pick up to 6.7% in 2024-25.

The ongoing recovery in China and healthy domestic demand in India will be key pillars supporting growth for the entire region throughout this year and next, according to the Outlook.

Between 2015 and 2019, India’s contribution to GDP growth in developing Asia was 22%, while China’s contribution was 53%, according to AfDB estimates.

“The People’s Republic of China still accounts for about half of the region’s growth, but its contribution will decline,” he said.

India’s contribution to growth in developing Asia is projected to increase to 27% by 2024-25, from around 25% in 2023-24, with China’s impact rising from 51% this year to 46 % by 2024-25.

“This rapid growth [for India] reflects healthy domestic consumption, which will be further boosted by the tax cuts and exemptions foreseen in the February Union budget. Due to the more limited role of exports in the economy, India will be less affected by the slowdown in advanced economies,” predicts the Outlook.

“South Asia will remain the best performing sub-region this year, driven by robust growth in India which is expected to register high growth this year and next,” said Abdul Abiad, director of the research division. AfDB’s macroeconomics during a press briefing. “In contrast, we expect slower growth in Pakistan and contraction in Sri Lanka,” he added.

While private investment is expected to weaken this year, government consumption this year “is expected to grow only slowly as central government spending shifts towards investment,” the AfDB said.

“Inflation will be on a downward trend as global price pressures ease. Improving state financial management is needed to scale up needed public investment,” he stressed, adding that growth will be boosted again in 2024-25 “by private consumption and investment as the global economy improves”.