Economy

India GDP growth to rebound to 11% in FY21-22, moderate to 7% in FY22-23: ADB

Our Bureau New Delhi | Updated on April 28, 2021

Forecast expects economic impact of second Covid wave to be more muted than first outbreak

The Asian Development Bank (ADB) has projected India’s gross domestic product (GDP) growth to rebound strongly to 11 per cent in current fiscal on the back of continued economic recovery boosted by increased public investment, vaccine rollout and surge in domestic demand.

This forecast assumes that vaccines are deployed extensively across the country and the second wave of the coronavirus (Covid-19) pandemic is contained.

India’s GDP likely to grow double digit this fiscal despite Covid-19 second wave: Rakesh Jhunjhunwala

In its latest flagship economic publication, Asian Development Outlook (ADO), ADB forecast India’s economic growth to moderate to 7 per cent in FY 2022 as base effects disappear.

ADB provided $1.5-billion fiscal support to India for pandemic response

Domestic demand

Domestic demand is expected to remain the main driver of growth this fiscal. A faster vaccine rollout will boost urban demand for services while rural demand will be boosted by robust agriculture growth and continued government support to farmers by expanding irrigation, improving value chains and increasing farm loan limits.

The economy is expected to have contracted by 8 per cent in 2019-20 in line with the government‘s second advance estimate.

“India’s economy faced its worst contraction in FY2020 (2020-21) due to the Covid-19 shock. With large government stimulus and ongoing vaccination drive, we expect economic activity will continue its recovery started from the third quarter of FY2020 (2020-21) and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services”, said ADB country director for India, Takeo Konishi, in a statement. “The government’s boost to public investment through its infrastructure push, incentives for manufacturing and continued support to boost rural incomes will support India’s accelerated recovery”.

Downside risks

ADB also said that risks to the outlook tilt to the downside. An uncertain pandemic trajectory with a prolonged second wave despite the vaccination push could affect India’s economic normalisation. The forecast, however expects, the economic impact of the second wave to be relatively muted compared to the first wave in line with global experience.

Other downside risks include further tightening of global financial conditions on fast recovery in developed countries, which would apply pressure on India’s market interest rates.

Economic activity will continue to normalise and recover, backed by government measures over the past year, including a large stimulus in FY2020 and a steep increase in capital expenditure budget in FY2021, the ADB report said.

Increased government expenditure on healthcare, water and sanitation will strengthen the country‘s resilience against future pandemics, it said.

Private investment is expected to pick up on improving sentiment and risk appetite, as well as accommodative credit conditions.

Agri sector drivers

Forecast of a normal monsoon and bumper harvest of summer crops will further boost the agriculture sector. The government‘s push to the manufacturing sector through the production-linked incentive scheme will expand domestic production and help integrate domestic manufacturing with global supply chains.

Inflation, after rising to 6.2 per cent in FY2020, is projected to moderate to 5.2 per cent in FY21-22 as good harvests and supply chain recovery contain domestic food inflation. Inflation is expected to ease further to 4.8 per cent in FY2022 on moderating domestic demand as the economy returns to normal. This will help the central bank maintain an accommodative stance by ensuring ample liquidity and keeping long-term interest rates from raising, the ADB said.

Published on April 28, 2021

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