India’s GDP to grow at 11% this fiscal; second wave of COVID a worry: ADB

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Updated: April 28, 2021 4:36 PM

India's economy is expected to grow 11 per cent in fiscal year (FY) 2021, which ends on March 31, 2022, amid a strong vaccine drive.

indian economy, economic survey, recovery of indian economy, surge in COVID cases, strong vaccine drive, Asian Development Outlook report, GDP of South AsiaIndia's economy is expected to grow 11 per cent in fiscal year (FY) 2021, ADB said

ADB on Wednesday said the Indian economy is projected to grow at 11 per cent in the current financial year on the back of the strong vaccination programme, but cautioned that second wave of COVID is worrying. “India’s economy is expected to grow 11 per cent in fiscal year (FY) 2021, which ends on March 31, 2022, amid a strong vaccine drive. However, the recent surge in COVID-19 cases may put this recovery at risk,” said the Asian Development Outlook (ADO) 2021. Continued economic recovery boosted by increased public investment, vaccine rollout and a surge in domestic demand will trigger this strong rebound, ADB said.

The predictions are based on assumption that there is extensive vaccine deployment across the country and the second wave of coronavirus is contained. According to ADB’s flagship publication Asian Development Outlook, “the second wave of COVID-19 cases is worrying, especially if vaccine rollout faulters or fails to contain it.”

Another risk is the further tightening of global financial conditions, which would apply pressure on India’s market interest rates and therefore affect economic normalisation, the report added.

Going further, ADB forecasts India’s economic growth to moderate to 7 per cent in FY2022, on account of disappearance of base effect. The economy is expected to have contracted by 8 per cent in FY2020, in line with the government’s second advance estimate, it said. ADB Country Director for India Takeo Konishi said India’s economy faced its worst contraction in FY2020 due to the COVID-19 shock.

“With large government stimulus and the ongoing vaccination drive, we expect economic activity will continue its recovery that started from the third quarter of FY2020 and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services,” said Konishi. 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, Konishi said.

The Manila-headquartered multilateral funding agency expects India’s economic activity to continue to normalise and recover owing to government measures in the past one year including “large stimulus in FY2020” and a steep increase in capital expenditure budget in FY2021. Increased government expenditure on healthcare, water, and sanitation will strengthen the country’s resilience against future pandemics, said the report, adding private investment is expected to pick up on improving sentiment and risk appetite, as well as accommodative credit conditions.

“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,” it said. ADO expects inflation to moderate to 5.2 per cent FY2021, having risen to 6.2 per cent in FY2020. Good harvests and supply chain recovery is expected to contain domestic food inflation, it said.

ADB said the current account deficit of India will equal to 1.1 per cent of GDP with imports outpacing exports on rising domestic demand and higher oil prices. About South Asia, of which India is a part, ADO said the region will see Asia’s fastest growth this year (2021) after suffering the sharpest contraction last year. South Asia’s aggregate output is forecast to expand by 9.5 per cent this calendar year, before tapering down to 6.6 per cent in 2022, as per the estimate.

“This largely reflects the performance of India… A stimulus-fueled surge in the US, India’s largest export market, will support the revival, but a severe second wave is threatening the recovery”. Growth is gaining momentum across developing Asia, but renewed COVID-19 outbreaks pose a threat to recovery, said ADB Chief Economist Yasuyuki Sawada. According to ADB, most economies in developing Asia will see healthy growth this year and in 2022.

Developing Asia comprises 46 members of ADB on the basis of geographic group. These include new industrialized economies, countries in Central Asia, East Asia, South Asia, Southeast Asia and the Pacific. Strong exports and a gradual recovery in household consumption will boost economic activity in China this year, the report said. China’s gross domestic product (GDP) is forecast to expand 8.1 per cent in 2021 and 5.5 per cent in 2022.

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