Economy

ADB lowers growth estimates for 2020-21 to 4%; forecasts recovery in 2021-22 to 6.2%

Our Bureau New Delhi | Updated on April 03, 2020 Published on April 03, 2020

Multilateral agency Asian Development Bank (ADB) on Friday estimated India’s economic growth to slow down to 4 per cent in the current fiscal (2020-21), that started on April 1. This is 2.5 per cent lower than its projection of 6.5 per cent made in December last year.

ADB, on the other hand, forecast a recovery of the Indian economy next fiscal (2021-22) with a growth rate of 6.2 per cent. It estimated India’s GDP growth in 2019-20 to be 5 per cent.

India’s growth rate is estimated to slow down “…due to a weak global environment and continued efforts to contain the novel coronavirus (Covid-19) outbreak in the country,” the agency said in its report ‘Asian Development Outlook 2020’ (ADO). The forecast assumes that the pandemic dissipates and full economic activity resumes from the second quarter (July-September) of the current fiscal.

“The Covid-19 pandemic jeopardises global growth and India’s recovery. But India’s macroeconomic fundamentals remain sound, and we expect the economy to recover strongly in the next fiscal year,” Yasuyuki Sawada, ADB Chief Economist said. Indian authorities have acted swiftly to shore up the economy hit by the pandemic, he added.

“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,” he hoped.

 

ADB’s projection is more optimistic than of other agencies such as S&P or Moody’s Investors Service. Even Reserve Bank of India’s Monetary Policy Committee (MPC) did not come out with any projection for the current fiscal while announcing its resolution. The central bank apprehended that even 5 per GDP growth rate estimate for 2019-20 “is now at risk from the pandemic’s impact on the economy.” As regards the outlook for 2020-21, it felt that apart from the continuing resilience of agriculture and allied activities, most other sectors of the economy will be adversely impacted by the pandemic, depending upon its intensity, spread and duration. If Covid-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could deepen, with adverse implications for India.

ADB said government initiatives introduced during last two weeks as well as in the Budget will aid recovery and sustain growth in the coming years. Both urban and rural consumption will be supported by reduced personal income taxes and increased assistance to agriculture sector and rural areas. Corporate tax cuts and increased public investment in infrastructure, including the National Infrastructure Pipeline, will revive investment. The recapitalisation of state-owned banks and financial sector reforms to revive credit will help alleviate much of the financial sector stress.

The report forecasts inflation of 3 per cent during the current fiscal due to decreased demand and lower oil prices, and then a rise to 3.8 per cent next fiscal as domestic demand improves. With inflation expected to soon ease into the target zone, the central bank will have more headroom to support the economy, the report said.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on April 03, 2020
This article is closed for comments.
Please Email the Editor