Home >News >India >ADB expects Indian economy to contract at a slower pace of 8%

The Asian Development Bank on Thursday said the Indian economy will contract at a slower pace of 8% against its earlier estimate of 9% in FY21 on the back of a faster recovery in Asia’s third-largest economy following the easing of covid restrictions.

“The earlier South Asia forecast for 6.8% contraction is upgraded to 6.1% in line with an improved projection for India, as recovery accelerates, from 9% contraction to 8%. Growth will return in 2021, at 7.2% in South Asia and 8% in India," ADB said in a supplement to its Asian Development Outlook.

The Indian economy contracted by 23.9% in the June quarter of FY21 and “began to normalize after containment measures started to ease in June". Economic contraction in the September quarter narrowed to 7.5%, better than expected, ADB said.

ADB now projects China’s economy to grow at 2.1% in 2020 from its earlier estimate of 1.8% growth, factoring in consistent fiscal and monetary support by the government.

“The outlook for developing Asia is showing improvement. Growth projections have been upgraded for China and India, the region’s two largest economies," said ADB chief economist Yasuyuki Sawada.

“A prolonged pandemic remains the primary risk. However, recent developments on the vaccine front are tempering this. Safe, effective and timely vaccine delivery in developing economies will be critical to support the reopening of economies and the recovery of growth," he said.

However, ADB revised its inflation forecast for FY21 to 5.8% from its earliest estimate of 4.5%. “In India, supply chain disruption brought food inflation to an average of 9.1% in the first seven months of FY21, pushing headline inflation to 6.9% in the same period. Inflation in India is expected to ease in the coming months and the 4% update projection for FY22 is maintained," ADB said.

Fitch Ratings on Tuesday revised upward its GDP estimate for India to a contraction of 9.4% in FY21 from the -10.5% projected earlier on the back of a faster-than-expected recovery and expected rollout of vaccines. However, it cautioned that the vaccine rollout over the next year will not reach the majority of the people, given the huge logistical and distribution challenges in the heavily populated country.

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