(Bloomberg)
(Bloomberg)

ADB cuts its India GDP growth forecast for 2019-20, a day ahead of RBI policy

  • Asian Development Bank cuts its India GDP growth forecast for 2019-20 to 7.2% from 7.6% in December
  • ADB also cautioned that its growth projection could see further revision if downside risks materialize

New Delhi: The Asian Development Bank (ADB) has cut its India GDP growth forecast for 2019-20 to 7.2% because of a slower-than-expected pickup in investment demand. ADB, which had estimated 7.6% economic growth in December, is the first multilateral lending agency to slash India’s growth estimate.

Despite this, India will remain the fastest growing major economy, as China is projected to grow at 6.3% in 2019, according to ADB’s estimate. In February, India’s statistics office revised its earlier growth forecast of 7.2% for 2018-19 to 7%.

With ADB’s downgrade of India’s growth estimates, the attention shifts to the Reserve Bank of India (RBI) and the International Monetary Fund (IMF), which had earlier projected 7.4% and 7.5% growth, respectively. IMF will release its World Economic Outlook next week, which will contain India’s growth estimates as well.

“The recent pickup in investment growth is expected to continue, albeit at a slow pace. Growth in public investment is likely to be modest for lack of funds. Rural income and consumption will enjoy policy boosts from enhanced income support to farmers and hikes in procurement prices for foodgrain, while interest rate cuts and soft food and fuel prices will bolster consumption in urban areas," ADB said in its annual Asian Development Outlook released on Wednesday.

Since inflation is expected to remain below the central bank’s target in the first half of 2019-20, it has opened up scope for further policy rate cuts, ADB said, a day before RBI unveils its first bimonthly monetary policy decision of the current fiscal.

ADB expects India's inflation rate to climb from 3.5% in 2018-19 to 4.3% in 2019-20, as food inflation accelerates with the increase in procurement prices paid to farmers, higher wages to agricultural workers and higher fertilizer prices. ADB also cautioned that its projection could see further revision if downside risks materialize.

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