India's GDP to grow at 11% this fiscal, fresh virus spike may put recovery at risk, says ADB

The Asian Development Bank (ADB) on Wednesday revised upwards India’s GDP growth forecast for 2021-22 to 11% from 8% earlier, on continued economic recovery boosted by increased public investment, vaccine rollout and a surge in domestic demand, but warned that failure to control the resurgence of Covid-19 cases poses a downside risk to the recovery. It also expects economic growth to moderate to 7% in FY23 as base effects disappear.

“Economic activity is forecast to rebound by 11%... as extensive vaccine deployment brings Covid-19 under control and a large base effect kicks in,” ADB said in its latest Asian Development Outlook (ADO) 2021, adding that the challenge is to sustain robust growth in a fractured economy beset by rising non-performing loans, constrained fiscal space, slow credit growth and digitalization, and persistent uncertainty in global environment.

As per official estimates, India’s economy is seen contracting 8% in FY21.


“The forecast assumes that vaccines are deployed extensively across the country and the second wave of the Covid-19 pandemic is contained,” it said.

As per the ADB, risks to the outlook tilt to the downside. “The second wave of Covid-19 cases is worrying, especially if vaccine roll out falters or fails to contain it,” it said.

Besides an uncertain pandemic trajectory with a prolonged second wave despite the vaccination push, economic normalization could also get affected by further tightening of global financial conditions, which would apply pressure on India’s market interest rates.

The forecast, however, expects the economic impact of the second wave to be relatively muted compared to the first wave in line with global experience.

“The government’s boost to public investment through its infrastructure push, incentives for manufacturing, and continued support to boost rural incomes will support India’s accelerated recovery,” said ADB country director for India Takeo Konishi.