ADB sees India GDP shrinking 9 per cent in FY21

In line with global agencies, the Asian Development Bank (ADB) on Tuesday lowered GDP (Gross Domestic Product) forecast to negative 9 per cent for FY 2020-21. Earlier it has projected growth of 4 per cent during the fiscal.

ADB’s forecast is similar to S&P but slightly better than Fitch which estimated contraction of 10.5 per cent.

“The coronavirus disease (Covid-19) pandemic weighs heavily on economic activity and consumer sentiment in the country,” ADB said in its new report Asian Development Outlook 2020 Update. However, the good news is that it has upped the growth forecast for 2021-22 to 8 per cent from 6.2 per cent predicted earlier as mobility and business activities resume more widely.

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Lockdown impact

“India imposed strict lockdown measures to contain the spread of the pandemic and this has had a severe impact on economic activity,” said ADB Chief Economist Yasuyuki Sawada.

Further he mentioned it is crucial that containment measures, such as robust testing, tracking, and ensuring treatment capacities, are implemented consistently and effectively to stop the spread of the pandemic and provide a sustainable platform for the economy’s recovery for the next fiscal year and beyond.

According to the report, the growth outlook remains highly vulnerable to either a prolonged outbreak or a resurgence of cases, with the country now having one of the highest number of Covid-19 cases globally.

NPA worries

Other downside risks include increasing public and private debt levels that could affect technology and infrastructure investment, as well as rising non-performing loans caused by the pandemic that could further weaken the financial sector and its ability to support economic growth.

Government initiatives to address the pandemic, including the rural employment guarantee programme and other social protection measures, will aid rural incomes protecting the vulnerable people, but private consumption may continue to suffer.

Investment is also expected to contract as investors remain deterred by heightened risks and uncertainties. The fiscal deficit is expected to rise significantly in FY2020 as government revenues fall and expenditures rise.

Reform measures

The government also initiated reforms in response to the Covid-19 pandemic focusing on enhancing agriculture markets, upgrading industrial park infrastructure, and implementing the National Infrastructure Pipeline.

These efforts will promote foreign investment, incentivise global supply chains to re-allocate to India, and create manufacturing hubs across the country. Financial support to low-income groups and small businesses can also help revive the economy in a more inclusive way.

Inflation is expected to fall in the remainder of the current fiscal to 4.5 per cent with tamed food prices and decreased economic activity, and then further decline to 4 per cent fiscal.

India’s current account deficit is forecast to shrink to 0.3 per cent of GDP this fiscal year, then widen to 0.6 per cent of GDP in FY 2021-22 with exports expected to recover as global growth rebounds, the report said.

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