ADB cuts India’s growth forecast to 5.1% for FY20
NEW DELHI: Asian Development Bank (ADB) on Wednesday lowered India’s economic growth forecast for FY20 to 5.1 % on slowing job prospects, rural distress exacerbated by poor harvest and credit crunch.
The multilateral bank, however, expects the growth to pick up to 6.5% next year on supportive government policies.
“In South Asia, India’s growth is now seen at a slower 5.1% in fiscal year 2020 as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion in the financial sector and a credit crunch.
“Also, consumption was affected by slow job growth and rural distress aggravated by a poor harvest. Growth should pick up to 6.5% in fiscal year 2021 with supportive policies,” the ADB said in a supplement to the Asian Development Outlook 2019 Update.
Earlier in September, it had trimmed India’s gross domestic product (GDP) growth to 6.5% from the earlier estimate of 7%. For FY21, it had projected a GDP growth of 7.2%, which now has been cut to 6.5%.
The Reserve Bank of India last week in its bi-monthly monetary policy review has cut India’s GDP forecast to 5% from 6.1% citing weak domestic and external demand.
While the International Monetary Fund (IMF) slashed India’s GDP growth projection to 6.1% from 7%, the World Bank lowered its estimate to 6%.
The GDP growth forecast for South Asia for 2019 is also cut to 5.1% from 6.2% earlier and to 6.1% from 6.7% next year (2020), the ADB said.
“These revisions reflect lowered growth projections for India at 5.1% in fiscal year 2020 (FY19, ending March 30, 2020) and 6.5%
THE MULTILATERAL BANK EXPECTS GROWTH TO PICK UP TO 6.5% NEXT YEAR ON SUPPORTIVE GOVERNMENT POLICIES
in FY21 (fiscal ending in March 2021),” ADB said in the supplement. The ADB said India’s growth in the first half of the current fiscal has slipped to 4.8% as expansion in private consumption slowed to 4.1% and in investment to 2.5%.
Having already slowed year on year from 5.8% in the fourth quarter of 2018-19 to 5% in the first quarter of 2019-20, growth in India fell further to 4.5% in the second quarter of FY20, the lowest quarterly rate since the last quarter of 2012, it added.
The ADB said the domestic demand has weakened significantly since late 2018.
Some tentative signs have emerged that the Indian economy is stabilising in the second half of FY2020 (ending March 2020), it said.
“Growth is expected to benefit from government policy measures in recent months, notably a corporate tax cut, divestment from some state-owned enterprises, capital injections into public banks, and policy rate reduction by a total of 135 basis points, with further measures possible in the coming months, said the ADB update supplement.
Growth in FY21 is likely to recover thanks to this support, low oil prices, and a weakening rupee, but risks to the projections remain tilted to the downside, it said on India.
In the rest of South Asia, economic growth is on track to meet forecasts, it said.
The growth rate in China is now expected at 6.1% this year and 5.8% next year due to trade tensions and slowdown in global activity coupled with weaker domestic demand, with family wallets being hit by pork prices that have doubled relative to a year ago, ADB said. “Growth could accelerate, however, should the US and the People’s Republic of China (PRC) come to an agreement on trade,” ADB said on China.