India’s economy to rebound to 11% in FY2021 - Asian Development Bank

Author: Nurluqman Suratman

2021/04/28

SINGAPORE (ICIS)--The Asian Development Bank (ADB) on Wednesday said that it expects India’s GDP growth to rebound to 11.0% in fiscal year (FY) 2021 ending on 31 March 2022 due to continued economic recovery boosted by increased public investment, vaccine rollout, and a surge in domestic demand.

The forecast assumes that vaccines are deployed extensively across the country and the second wave of the coronavirus disease (COVID-19) pandemic is contained, the bank said in a statement.

India is currently battling a surge in coronavirus cases which peaked at more than 350,000 on 26 April. The total number of Indian cases so far is nearly 17 million with 192,000 deaths.

The ADB in its earlier Asian Development Outlook (ADO) 2021 report forecasted India’s economic growth to moderate to 7.0% in FY2022 as base effects disappear.

The economy is expected to have contracted by 8.0% in FY2020, in line with government estimates.

“With large government stimulus and the ongoing vaccination drive, we expect economic activity will continue its recovery 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 ADB country director for India Takeo 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.

Economic activity will continue to normalise and recover, backed by government measures over the past year including a large stimulus in FY2020 and a steep increase in capital expenditure budget in FY2021.

Domestic demand is expected to remain the main driver of India’s growth, according to the ADB.

“A faster vaccine rollout will boost urban demand for services, while the rural demand will be boosted by robust agriculture growth and continued government support to farmers by expanding irrigation, improving value chains, and increasing farm loan limits,” it said.

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.

In FY2021, the current account deficit will equal to 1.1% of GDP with imports outpacing exports on rising domestic demand and higher oil prices.

Exports and imports will grow moderately in FY2022 as global demand normalizes, bringing down the current account deficit marginally to 1.0%.

“The key risk is that the drag in mobility widens to impact the broader economy, although we still believe the impact will be short-term (1-3 months) and less severe (than in Q2 2020), due to a more pandemic-adept economy,” Japan’s Nomura Global Markets Research said in a note.

Focus article by Nurluqman Suratman