India's GDP to contract by 9% in fiscal 2020-21: ADB

15 Sep '20

2 min read

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India’s gross domestic product (GDP) growth for fiscal 2020-21 is projected to contract by 9 per cent as the pandemic weighs heavily on economic activity and consumer sentiment, according to a recent report by the Asian Development Bank (ADB), which forecast a strong recovery in 2021-22, with GDP growing by 8 per cent as mobility and business activities resume more widely.

“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 COVID-19 and provide a sustainable platform for the economy’s recovery for the next fiscal year and beyond.” ADB chief economist Yasuyuki Sawada said in its Asian Development Outlook (ADO) 2020 Update.

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.

Other downside risks include increasing public and private debt levels that could affect technology and infrastructure investment, as well as rising nonperforming loans caused by the pandemic that could further weaken the financial sector and its ability to support economic growth, ADB said in a press release.

Government initiatives to address the pandemic, including the rural employment guarantee program 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 fiscal 2020-21 as government revenues fall and expenditures rise.

Government reform initiatives in response to the pandemic will promote foreign investment, incentivize global supply chains to reallocate 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, said ADB.

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 in 2021-2022. India’s current account deficit is forecast to shrink to 0.3 per cent of GDP this fiscal, then widen to 0.6 per cent of GDP in the next, with exports expected to recover as global growth rebounds.

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