JOIN USIndia’s GDP may have slowed to 4% in FY20
Weighed down by COVID-19 pandemic, India’s economic growth may have slowed to 4% as against 5% projected by the government in the year that concluded on March 31 but it could recover to over 6% in 2021, the Asian Development Bank (ADB) said on Friday.
But its optimism is based on the assumption that the virus may dissipate and full economic activity resumes after June 2020.
The centre would release 2019-20 GDP numbers next month.
“The Asian Development Outlook (ADO) 2020 forecasts a recovery in India’s economy in FY21, with the growth of 6.2%, supported by government reform”.
ADO is ADB’s annual flagship economic publication.
“The COVID-19 pandemic jeopardizes 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,” said ADB Chief Economist Yasuyuki Sawada.
“Indian authorities have acted swiftly to shore up the economy hit by the pandemic. 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,” it said.
It, however, said that the risks to the outlook were firmly on the downside. A prolonged pandemic would push the global economy into a deep recession and further slow Indian growth. Were the virus to spread widely within India, economic activity would be severely constrained.
In late March, India took prompt action to strengthen the health system and support the poor and vulnerable. The Reserve Bank of India (RBI) has cut its policy rate to the lowest ever and committed to using all instruments to fight the pandemic.
“Government initiatives introduced in late FY19 and in the FY20 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 the 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 reform to revive credit will help alleviate much of the financial sector stress,” it said.
The report forecast inflation of 3.0% in FY20 due to decreased demand and lower oil prices; and then rise to 3.8% in FY21 as domestic demand improves. With inflation expected to ease into the target zone soon, the central bank will have more headroom to support the economy.
In FY20, the current account deficit is projected to narrow to the equivalent of 0.3% of GDP as global growth and oil prices falter. Imports of goods and services, supported by rising domestic demand and oil prices, are likely to outgrow exports, and the current account deficit is forecast to rise to equal 1.2% of GDP.