Economy

ADB cuts India’s growth rate to 7.2% in 2019-20

Our Bureau New Delhi | Updated on April 03, 2019 Published on April 03, 2019

Asian Development Bank   -  Twitter/ ADB

Asian Development Bank (ADB) on Wednesday lowered India’s growth by 40 basis points to 7.2 per cent in fiscal year 2019-20. Still. It will be fastest growing economy in the world. The growth rate in FY 2020-21 likely to be 7.3 per cent. 

ADB, in its flagship publication Asian Development Outlook 2019, mentioned that recent policy measures by the Government to improve the investment climate and boost private consumption and investment will help India to lift economic growth in the next two fiscal years. ADB projection is slightly higher than projections by other agencies which estimated growth rate between 7 to 7.1 per cent.

For the entire Asia, the multilateral agency forecasted that growth will soften to 5.7 per cent in 2019 and 5.6 per cent in 2020. Developing Asia’s growth in 2018 was 5.9 per cent. Excluding the newly industrialized economies of Hong Kong (China), South Korea, Singapore, and Taipei (China), developing Asia is forecast to expand 6.2 per cent in 2019 and a slightly slower 6.1 per cent in 2020. Still, it is lower than 6.4 per cent growth recorded in 2018.

Fastest growing

“India will remain one of the fastest-growing major economies in the world this year given strong household spending and corporate fundamentals,” Yasuyuki Sawada, Chief Economist at ADB said while adding that this country has a golden opportunity to cement recent economic gains by becoming more integrated in global value chains. “The country’s young workforce, an improving business climate, and a renewed focus on export expansion all support this,” he mentioned.

Income support to farmers, hikes in procurement prices for food grains, and tax relief to tax payers earning less than Rs 5 lakh will boost household income. Declining fuel and food prices are also expected to provide an impetus for consumption. An increase in utilization of production capacity by firms, along with falling levels of stressed assets held by banks and easing of credit restrictions on certain banks, is expected to help investment grow at a healthy rate.

Trade tensions

However, there are some areas of concern. According to the report, downside risks to growth include a higher-than-expected moderation in global demand and a potential escalation of trade tensions. Lower-than-targeted tax revenues or a delay in strengthening bank and corporate balance sheets could also undermine economic expansion.

Consumer price inflation is expected to rise to 4.3 per cent in FY 2019 and 4.6 per cent in FY2020 as food costs increase slightly and domestic demand strengthens. Given that inflation is expected to average around 4 per cent in the first half of FY2019, the central bank would have some room for lowering policy rates.

Imports are expected to rise mainly due to stronger domestic demand while a growth slowdown in India’s key export destinations would dent export growth. The current account deficit is expected to widen a bit to 2.4 per cent of GDP in FY2019 and 2.5 per cent of GDP in FY2019. The deficit is expected to be financed comfortably by capital flows, given that India has emerged as an attractive destination for foreign investment.

Published on April 03, 2019
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