ADB expects India GDP to slip to 4 pc in 2020-21; projects strong recovery next fiscal

New Delhi: The Asian Development Bank (ADB) has projected India’ growth to slow down to 4% in the current fiscal year, citing weak global demand and the government’s Covid-19 containment efforts. The outlook for India remains subdued, with growth slowing from 5.0% last fiscal year to 4.0% this year, it said in the Asian Development Outlook (ADO) 2020 released on Friday.

The ADO is its annual flagship economic publication. The bank expects the country’s gross domestic product growth to strengthen to 6.2% in FY22, boosted by government reforms. The forecast assumes that the Covid-19 pandemic dissipates and full economic activity resumes from the second quarter of this fiscal year.

“Indian authorities have acted swiftly to shore up the economy hit by the pandemic. Ongoing reforms to personal and corporate taxes and measures to strengthen agriculture and the rural economy and alleviate financial sector stress will help accelerate India’s recovery,” ADB chief economist Yasuyuki Sawada said.

The ADO comes amid a series of downgrades for India’s growth. Recently, Moody’s Investors Service slashed its forecast on India’s 2020 growth to 2.5%, while S&P Global Ratings has lowered its estimate to 3.5% for FY21.

According to the report, although the coronavirus has not yet spread extensively in India, containment measures like the lockdown and weaker global sentiment would whip up headwinds for the economy with demand depressed and supply disrupted.

It expects domestic demand to rebound strongly once the pandemic passes and full economic activity resumes. “As consumer sentiment and investor confidence are restored, growth in consumption and investment are expected to return to rates similar to before FY2019, or perhaps higher,” it said.

On March 26, the government announced a Rs 1.7 lakh crore Pradhan Mantri Garib Kalyan Yojana that included cash transfers and food security components as relief to the poor amid the 21-day lockdown.

This was followed by the Reserve Bank of India reducing its policy interest rate to help improve liquidity and allowing banks to impose a three-month moratorium on all types of loan repayments. The South Asian region will face a milder slowdown as compared to larger trends, the report said.

Tracking the dominant Indian economy, the ADB estimated growth in South Asia to decelerate to 4.1% in 2020 and then recover to 6%. Like most forecasts coming out during this period, the ADB noted that risks remained firmly on the downside owing to the Covid-19 outbreak.

“A prolonged pandemic would push the global economy into deep recession and further slow Indian growth. Were the virus to spread widely within India, economic activity would be severely constrained,” the bank said.