ADB (Asian Development Bank) has lowered its forecast for the current fiscal (ending March 2022) to 10 per cent from 11 per cent while raising the estimate to 7.5 per cent from 7 per cent for the next fiscal (ending March 2023).

This is second announcement lowering the growth forecast within 24 hours. On Tuesday, the Organisation for Economic Co-operation and Development (OECD) cut its projection of India’s economic growth by 0.2 percentage points to 9.7 per cent for the current financial year. Still, this along with ADB’s forecast is tad better than S&P’s RBI’s estimate of 9.5 per cent.

“The forecast, for the 12 months ending 31 March 2022 takes into account disruptions in economic activity caused by the second coronavirus disease pandemic wave, which adversely impacted services, domestic consumption, and the urban informal sector,” ADB said in its latest Asian Development Outlook (ADO) 2021 Update .

Signs of recovery

The multilateral agency expects GDP growth to moderate to 7.5 per cent next fiscal. Further, it said that the forecast assumes a relatively limited economic impact from the pandemic going forward thanks to an accelerated vaccination campaign and better preparedness among businesses, households, and the health care sector.

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“The Indian economy is showing encouraging signs of recovery as the effects of the second wave dissipate,” said Takeo Konishi, ADB Country Director for India. He listed the vaccination drive, new fiscal stimulus package, and initiatives to free more resources for infrastructure development, along with measures to strengthen health-related interventions to boost recovery.

The economy is projected to rebound in the last 3 quarters of the current fiscal, as reflected in improvements in electronic waybills, mobility data, and the purchasing managers’ index. First-quarter GDP rebounded 20.1 per cent from a year earlier even as the second wave of the pandemic curbed economic activity.

Limited inflation

The report felt that though easing of supply chain disruptions will moderate inflation to 5.5 per cent during current the fiscal and 4.8 per cent next fiscal, rising global prices for oil and other commodities, as well as domestic food prices, will continue to exert inflationary pressure.

The trade deficit this fiscal may widen due to rising imports amid higher domestic demand, before narrowing to 1 per cent next fiscal as economic growth moderates.

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“India’s central bank, the Reserve Bank of India, is expected to continue its accommodative policy stance,” it added.

The report also said that private consumption and investment are projected to remain weak due to the pandemic’s impact on household incomes, spending capacity, and lending. However, the government’s national monetisation plan is expected to drive public investment to boost infrastructure development. Growth in the agriculture sector will remain resilient, yet marginally lower with the pandemic’s spread into rural areas and a delayed monsoon. Exports will rebound, supported by the recovery in global demand, it mentioned.

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