ADB cuts India’s GDP growth forecast to 6.5% for FY20

The Asian Development Bank (ADB) on Wednesday lowered growth projection for India by 50 basis points or half a percentage. This is second successive lowering of estimates by the regional development bank in three months.

In an report titled, Update of Asian Development Outlook (ADO) 2019, the agency said that the growth rate is expected now at 6.5 per cent during current fiscal, i.e., 2019-20.

This reduction is mainly on account of weaker expansion in the first quarter (April-June) of the current fiscal. The first quarter growth rate was 5 per cent. Though it is slightly higher than expectations, but it is below the 8 per cent GDP growth rate recorded during corresponding period of last fiscal (2018-19).

“India will remain as one of the fastest-growing economies in the world this year and next year as the government continues to implement policy reforms and interventions to strengthen economic fundamentals,” ADB Chief Economist Yasuyuki Sawada said.

The agency feels that India will bounce back with proactive policy interventions along with a recovery in domestic demand and investments. It has maintained the growth estimate for 2020-21 at 7.2 per cent. 

Implementation is the key

According to the report, significant corporate tax cuts, announced by the government on September 20 will uplift private investment, including foreign direct investments, and enhance India’s global competitiveness. Bank recapitalisation, support measures for non-banking financial companies and cuts in monetary policy rates should improve the health of the financial sector, while increasing the credit flow to industry and infrastructure projects, it said.

Other measures, such as a direct income support for small farmers, a tax relief for low-income taxpayers and reduced loan interest rates are expected to boost rural and urban consumption across the country. Fast-tracking of goods and services tax refunds should provide an important boost to small and medium-sized firms that have been constrained by a shortage of working capital. Implementation of these measures will brighten prospects for India’s economy in 2020-21.

More reforms needed

Inflation will be benign for 2019-20 and 2020-21 at 3.5 per cent and 4 per cent, respectively, both within the central bank target range, as food prices remain stable. However, the report said that risks remain tilted to the downside given the weak global economy and, on the domestic front, the lag between growth-enhancing measures and the impact on demand. 

Indian exports are likely to be hit by subdued overseas demand and rising trade tension, and the current account deficit will be 2.2 per cent in 2019-20 and 2.5 per cent in 2020-21. 

Foreign direct investment could get a boost during these two years, as the trade tensions between the United States and China may push some businesses to move part of their operations to India. To capitalise on this, the government would do well to improve investment climate and further liberalise investment regulations, the report said.

ADB said that it committed to achieving a prosperous, inclusive, resilient and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members, of whom 49 are from the region.

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