Economy

ADB lowers contraction for India to (-) 8% in FY2020-21

New Delhi | Updated on December 10, 2020 Published on December 10, 2020

Projection similar to that of other agencies including RBI; expects growth in Q3 (Oct-Dec) current fiscal

Asian Development Bank (ADB) on Thursday lowered the expected contraction for India in the current fiscal to 8 per cent from 9 per cent.

“Having contracted by 23.9 per cent in Q1 (April-June) of fiscal year 2020 (FY2020 ending March 31, 2021), the Indian economy began to normalise after containment measures started in ease in June, with economic contraction in Q2 (July-September) FY2020 narrowing to 7.5 per cent, better than expected,” ADB said in its latest ‘Asian Development Outlook 2020 Update’.

ADB’s projection is similar to that of various other agencies, including RBI, which lowered the contraction to 7.5 from 9.5 per cent, and expecting to see growth during the October-December (Q3) period of the current fiscal.

Also read: IMF slashes India’s GDP growth forecast to -10.3% for this fiscal

The outlook further analysed Q2 numbers by saying agriculture, manufacturing, and utilities grew year-on-year, while a decline in fixed investment improved from 47.1 per cent in Q1 to 7.3 per cent. Net exports contributed 3.4 percentage points to growth in Q2. With the pandemic possibly having peaked in mid-September, many high-frequency indicators are better than a year ago or back to pre-Covid-19 levels, indicating accelerating economic normalisation. “The GDP forecast for FY2020 is upgraded from 9 per cent contraction to 8 per cent, with GDP in H2 (October-March) probably restored to its size a year earlier. The growth projection for FY2021 is kept at 8 per cent,” the outlook said.

However, ADB expects inflation to go up to 5.8 per cent from 4.5 per cent of earlier projection. “In India, supply chain disruption brought food inflation to an average of 9.1 per cent in the first seven months of FY2020, pushing headline inflation to 6.9 per cent in the same period,” ADB said, while keeping the projection for FY2021-22 at 4 per cent.

ADB’s Chief Economist Yasuyuki Sawada said that the outlook for developing Asia is showing improvement. Growth projections have been upgraded for the People’s Republic of China (PRC) and India, the region’s two largest economies. “A prolonged pandemic remains the primary risk, but recent developments on the vaccine front are tempering this fear. Safe, effective, and timely vaccine delivery in developing economies will be critical to support the reopening of economies and the recovery of growth in the region,” he said. Economic activity in developing Asia is forecast to contract by 0.4 per cent this year, before picking up to 6.8 per cent in 2021, he added.

   

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Published on December 10, 2020
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