The Asian Development Bank (ADB) on Friday said that India’s economic growth rate will slip to 4 per cent in the current fiscal on account of the global health emergency created by COVID-19 pandemic.
At the same time, the multilateral lending agency in its flagship publication Asian Development Outlook (ADO) 2020 said that India will stage a strong recovery in the next financial year on the back of its sound macroeconomic fundamentals.
India’s economic growth for 2019-20 has been estimated at 5 per cent by the National Statistics Office (NSO).
The Manila-headquartered agency said the growth rate of Indian economy is expected to be slow on weak global environment, amid continued efforts to contain the novel coronavirus (COVID-19) outbreak in the country.
The deadly disease has claimed over 50,000 lives across the globe, the maximum number of which has been reported from some countries in the European region and the US. The total number of infected people has crossed over 1 million (10 lakh).
In India, more than 50 lives have been lost, as per the latest data, and number of infected people stands over 2,000.
“We face extraordinarily challenging times. The outbreak of COVID-19 is disrupting people’s lives and interrupting business and other economic activities around the world,” said Masatsugu Asakawa, President of Asian Development Bank.
Speaking on India, ADB Chief Economist Yasuyuki Sawada said, “The COVID-19 pandemic jeopardizes global growth and India’s recovery. But India’s macroeconomic fundamentals remain sound, and we expect the economy to recover strongly in the next fiscal year.”
Mr Sawada said 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,” he added.
Risks to the economic outlook are firmly on the downside, it said, adding a prolonged pandemic would push the global economy into deep recession and further slow Indian growth.
Were the virus to spread widely within India, economic activity would be severely constrained, ADB said.
The Asian Development Outlook (ADO) 2020 forecasts a recovery in India’s economy in FY2021, with growth of 6.2 per cent, supported by government reform.
The funding agency said that Indian government’s initiatives introduced in late FY2019 and FY2020 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, it noted.
The agency said that recapitalisation of state-owned banks and financial sector reform to revive credit will help alleviate much of the financial sector stress.
On the price situation front, ADB has forecast the inflation of 3 per cent in the current fiscal due to decreased demand and lower oil prices.
However, it said inflation may then rise to 3.8 per cent in 2021-22 as domestic demand improves.
“With inflation expected to ease into the target zone soon, the central bank will have more headroom to support the economy,” ADO 2020 said.
On the government’s fiscal position, it has projected the current account deficit in 2020-21 to narrow to the equivalent of 0.3 per cent of GDP as global growth and oil prices falter.
In 2021-21, imports of goods and services, supported by rising domestic demand and oil prices, are likely to outgrow exports, and the current account deficit is forecast to rise to equal 1.2 per cent of GDP.
Region-wise, South Asia will face a milder slowdown, it stated.
“Growth in South Asia will decelerate to 4.1 per cent in 2020 and then recover to 6 per cent in 2021, largely tracking the trend in the dominant Indian economy,” according to ADO 2020.
After a disappointing 2019, growth in the region (Asia and Pacific) is expected to slow sharply to 2.2 per cent in 2020 under the effects of the current health emergency and then rebound to 6.2 per cent in 2021, region wise, as per the outlook.
Developing Asia will weaken tremendously due to the pandemic, considering the region’s deep integration with the global economy through tourism, trade, and remittances, it said, adding that plummeting commodity prices are also placing a severe burden on some countries.
“Our research sees global losses from COVID-19 ranging from USD 2 trillion to USD 4.1 trillion, equal to 2.3-4.8 per cent of global GDP,” ADB said.
The estimate does not take into account such factors as supply disruptions, interrupted remittances, urgent health-care costs, and potential financial disruptions, as well as long-term effects on education and the economy, the ADO 2020 report said.
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