ADB trims India's GDP forecast to 10% for FY22, inflation to decelerate 5.5% this year

The economy is projected to rebound in the last 3 quarters of FY2021, as reflected in improvements in electronic waybills, mobility data, and the purchasing managers’ index.

Sep 23, 2021 10:09 IST India Infoline News Service

The Asian Development Bank (ADB) has scaled down India’s gross domestic product (GDP) forecast to 10% for the financial year of 2022 (FY22). Earlier, ADB has predicted a 11% growth for the country's economy. However, ADB expects the economy to rebound driven by a surge in domestic demand and exports.

In its Asian Development Outlook (ADO) 2021 Update, ADB stated that the forecast, for the 12 months ending 31 March 2022, takes into account disruptions in economic activity caused by the second coronavirus disease (COVID-19) pandemic wave, which adversely impacted services, domestic consumption, and the urban informal sector.

GDP growth is expected to moderate to 7.5% in the financial year of 2022 which was increased slightly from previous estimate of 7%. The forecast assumes a relatively limited economic impact from the pandemic going forward thanks to an accelerated vaccination campaign and better preparedness among businesses, households, and the health care sector, ADB added.

ADB said that the  growth forecast for India in fiscal year 2021 (FY2021, ending 30 September 2021) is revised down, as May’s spike in COVID-19 dented the recovery. The outbreak, however, dissipated faster than anticipated, resulting in several states easing lockdown measures and returning to more normal travel patterns.

"The economy is expected to rebound strongly in the remaining three quarters of FY2021, and grow by 10.0% in the full fiscal year before moderating to 7.5% in FY2022. Because consumption will recover only gradually, government spending and exports will contribute more to FY2021’s growth than they did in the previous fiscal year," ADB added.

Inflation in India is expected to decelerate to 5.5% this year from 6.2% in 2020, as per ADB. 

“The Indian economy is showing encouraging signs of recovery as the effects of the second wave dissipate,” said ADB Country Director for India Takeo Konishi. “The government’s vaccination drive, its new fiscal stimulus package, and initiatives to free more resources for infrastructure development, along with measures to strengthen health-related interventions, are helping speed up recovery.”

The economy is projected to rebound in the last 3 quarters of FY2021, as reflected in improvements in electronic waybills, mobility data, and the purchasing managers’ index. First-quarter GDP rebounded 20.1% from a year earlier even as the second wave of the pandemic curbed economic activity.

Private consumption and investment are projected to remain weak due to the pandemic’s impact on household incomes, spending capacity, and lending. However, the government’s national monetization plan is expected to drive public investment to boost infrastructure development. Growth in the agriculture sector will remain resilient, yet marginally lower with the pandemic’s spread into rural areas and a delayed monsoon. Exports will rebound, supported by the recovery in global demand.

India’s central bank, the Reserve Bank of India, is expected to continue its accommodative policy stance. An easing of supply chain disruptions will moderate inflation to 5.5% in FY2021 and 4.8% in FY2022, but rising global prices for oil and other commodities, as well as domestic food prices, will continue to exert inflationary pressure. The trade deficit in FY2021 may widen due to rising imports amid higher domestic demand, before narrowing to 1.0% in FY2022 as economic growth moderates.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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