ADB trims India's FY22 growth forecast to 10% on second wave impact

Downward revision stems from India's economic recovery getting impacted due to spike in Covid-19 cases in May, the agency said

The Asian Development Bank (ADB) has cut India’s growth projection for financial year 2021-22 to 10 per cent from 11 per cent earlier taking into account the adverse impact on services, domestic consumption, and the urban informal sector due to the second wave of Covid-19 pandemic.

The downward revision in growth forecast has been a result of India’s economic recovery getting impacted due to spike in Covid-19 cases in May, the agency said in its Asian Development Outlook (ADO) 2021 report.

However, the outbreak dissipated faster than anticipated with several states easing lockdown measures, it said.

“The economy is expected to rebound strongly in the remaining three quarters of FY2021 (April 2021-March 2022), and grow by 10 per cent in the full fiscal year before moderating to 7.5 per cent in FY2022 (April 2022-March 2023). Because consumption will recover only gradually, government spending and exports will contribute more to FY2021’s growth than they did in the previous fiscal year,” the multilateral agency said.

The economic rebound in the last three quarters of the current financial year is estimated based on improvements in electronic waybills, mobility data, and the purchasing managers’ index.

Private consumption and investment are projected to remain weak due to the pandemic’s impact on household incomes, spending capacity, and lending. However, the government’s plan to monetise assets through its National Monetization Pipeline (NMP) is expected to drive public investment to boost infrastructure development, the report said.

“Growth in the agriculture sector will remain resilient, yet marginally lower with the pandemic’s spread into rural areas and a delayed monsoon,” the report by ADB said.

In its previous outlook, released in April, ADB had projected India’s growth at 11 per cent for the ongoing financial year. For the next financial year it had estimated the Indian economy’s growth at 7 per cent.

The agency said its current projection assumes that the impact of a potential third wave of the Covid-19 pandemic would be limited as the vaccination drive is progressing on schedule, and better preparedness of households and firms. About two-thirds of the population possessing some antibodies against the virus, as found by nationwide serological surveys, will also keep the impact limited, it said.

In its last monetary policy review, the Reserve Bank of India had retained India’s real GDP growth projection at 9.5 per cent for 2021-22 on the back of normalising domestic economic activity and the phased reopening of the economy.

Easing of supply chain disruptions will moderate inflation to 5.5 per cent in the current financial year and to 4.8 per cent next year, ADB said. However, rising global prices for oil and other commodities, and domestic food prices will continue to exert inflationary pressure.