Home > News > India > ADB slashes India’s FY21 growth forecast to 4%, Fitch pegs it at 2%

The Asian Development Bank (ADB) slashed its growth outlook for India from 6.5% to 4% for 2020-21, citing a weak global environment and continued efforts to contain the covid-19 outbreak within the country.

“The forecast assumes that the pandemic dissipates and full economic activity resumes from the second quarter of FY20," ADB said in its Asian Development Outlook 2020 released on Friday.

“The covid-19 pandemic jeopardizes global growth and India’s recovery. Indian authorities have acted swiftly to shore up the economy hit by the pandemic. Ongoing reforms to personal and corporate taxes and measures to strengthen agriculture and the rural economy and alleviate financial sector stress will help accelerate India’s recovery," ADB chief economist Yasuyuki Sawada said.

India’s growth is estimated to have declined below 5% in FY20 from 6.1% in FY19, as domestic investment and consumption demand were under stress because of the liquidity crunch that non-banking financial companies faced and the sharp slowdown in credit growth.

India’s growth estimate by ADB is more optimistic than most other forecasters. Fitch Ratings on Friday also slashed its FY21 growth projection for India to 2% from 5.1% estimated just 15 days ago. Standard Chartered Bank said it expects growth to slip to a three-decade low of 2.7% in FY21.

ADB said risks to its growth outlook are firmly on the downside. “A prolonged pandemic would push the global economy into a deep recession and further slow Indian growth. Were the virus to spread widely within India, economic activity would be severely constrained," it said.

India has imposed a 21-day nationwide lockdown to limit the spread of covid-19.

Finance minister Nirmala Sitharaman last week rolled out a 1.7 trillion relief package, in an attempt to limit the economic damage caused by the coronavirus outbreak and tackle loss of livelihood of millions of poor hit by the unprecedented lockdown. The relief package aims to alleviate the financial pain faced by migrant workers, farmers, urban and rural poor, and women. The government is also working on a fiscal stimulus to jump-start the economy apart from providing support to the healthcare and industrial sectors, economic affairs secretary Atanu Chakraborty hinted on Tuesday. The Reserve Bank of India (RBI) has also taken a series of steps to boost liquidity in the banking system and encourage banks to lend.

Recent leading indicators such as manufacturing Purchasing Managers’ Index (PMI), goods and services tax collections and auto sales for the month of March suggest substantial impact of the covid-19 outbreak on the Indian economy.

ADB said government initiatives introduced in late FY20 and in the FY21 budget will aid recovery and sustain growth in the coming years. “Both urban and rural consumption will be supported by reduced personal income taxes and increased assistance to agriculture sector and rural areas. Corporate tax cuts and increased public investment in infrastructure, including the national infrastructure pipeline, will revive investment. The recapitalization of state-owned banks and financial sector reform to revive credit will help alleviate much of the financial sector stress," it said.

The growth forecast by Fitch, released as an update to its Global Economic Outlook (GEO), is the lowest among the major rating agencies. Standard & Poor’s expects growth to slow to 3.5%, while Moody’s expects India’s economy to slow down to 2.5%.

Fitch said the speed at which the coronavirus pandemic is evolving has necessitated another round of huge cuts to its global GDP forecasts. “We now expect world economic activity to decline by 1.9% in 2020 with US GDP down by 3.3%, the eurozone down by 4.2% and the UK down by 3.9%. China’s recovery from the disruption in 1Q20 will be sharply curtailed by the global recession and annual growth will be below 2%. These numbers are much worse than the baseline (and downside variant) of the March 2020 GEO forecast published on 19 March, when we expected global growth of over 1%," it said.

The rating agency said lockdowns being implemented in many countries are having dramatic effects on daily economic activity with full nationwide lockdowns reducing daily activity by about 20% relative to normal levels.

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