"India's economy is now expected to grow by 6.5 per cent in 2012, down from the previous forecast of 7 per cent. India's outlook is clouded by a combination of high inflation and poor demand, both externally and internally," the ADB said in its 'Outlook Supplement' report.
It said that the weakness in the economy was reflected in declining business confidence, slow credit growth and subdued sales of automobile sector.
"With persistently high inflation, monetary policy has little room to counter the slowdown in economic growth...High inflation and trade deficit make it difficult to ease monetary policy to stimulate demand," ADB said.
The Reserve Bank is scheduled to announce its quarterly review of monetary policy on July 31.
Wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for the same month was 10.36 per cent.
The Manila-based multilateral lender has also lowered the India's growth forecast for 2013 to 7.3 per cent, from the 7.5 per cent projection made in April.
ADB has cut its growth forecasts for developing Asia to 6.6 per cent for 2012 citing economic problems in the Eurozone and its impact on global demand. It had projected a 6.9 per cent growth for the region earlier.
It further said that the decline in growth forecast for developing Asia was mainly on account of lower growth in India and China. MORE
