ADB predicts India’s GDP will rebound strongly by 11%

While many economists and rating agencies forecast a downfall in the Indian economy, the Asian Development Bank (ADB) predicts that India’s Gross Domestic Product (GDP) will rebound strongly by 11% in fiscal year 2021-22 ending on March 31, 2022. It says continued economic recovery, boosted by increased public investment, vaccine rollout and a surge in domestic demand.

The Manila-based ADB, in its latest Asian Development Outlook 2021, forecasts India’s economic growth to moderate to 7.0% in FY2022 as base effects disappear. The economy is expected to have contracted by 8.0% in FY2020 in line with the government’s second advance estimate. The IMF recently estimated the Indian economy to grow by 12.5% in the current financial year.

Takeo Konishi, ADB Country Director for India, said India’s economy faced its worst contraction in FY2020 due to the COVID-19 shock. “With large government stimulus and the ongoing vaccination drive, we expect economic activity will continue its recovery started from the third quarter of FY2020 and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services,” he said. “The government’s boost to public investment through its infrastructure push, incentives for manufacturing, and continued support to boost rural incomes will support India’s accelerated recovery.”

The ADB highlighted that risks to the outlook tilt to the downside. It said an uncertain pandemic trajectory with a prolonged second wave, despite the vaccination push, could affect India’s economic normalization. The forecast expects the economic impact of the second wave to be relatively muted compared to the first wave in line with global experience. It pointed out other downside risks as further tightening of global financial conditions on fast recovery in developed countries, which would apply pressure on India’s market interest rates.

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Localized lockdowns is expected to hurt economic growth and economic recovery underway may slowdown significantly. Economic activity will continue to normalize and recover, backed by government measures over the past year, including a large stimulus in FY2020, and a steep increase in capital expenditure budget in FY2021. Furthermore, increased government expenditure on healthcare, water and sanitation will strengthen the country’s resilience against future pandemics. And private investment is expected to pick up on improving sentiment and risk appetite, as well as accommodative credit conditions.