The Asian Development Bank (ADB) has downgraded its India growth forecast for this year to 10% on Tuesday, from 11% projected in April, citing the second wave restrictions across States and expects most of India’s population to be vaccinated by 2022-23.
The Indian government has assured COVID-19 vaccines will be provided for all by December 2021, but ADB’s comments suggest global observers are not convinced of the target being achieved.
A faster than expected spurt in fuel and food prices in India also nudged the Bank to elevate its average inflation projection for 2021-22 to 5.5% compared to 5.2% anticipated earlier. The Reserve Bank of India (RBI) has projected retail inflation at 5.1% for this period.
Retail inflation, which has been around 6.3% over May and June, is also expected to remain above the Reserve Bank of India’s preferred target level of 4% in 2022-23 at 4.8%.
India’s average inflation in 2020-21 was 6.2%, so ADB’s projections suggest nearly three successive years of inflation hovering near the central bank’s upper tolerance limit of 6% than the preferred midpoint of the 2%-6% range it has to maintain, as per the Monetary Policy Committee’s mandate.
Inflation had shot past the RBI’s comfort zone in December 2019 to 7.4%, the highest since July 2014. By March 2020, it had cooled off to 5.91% before resurging to average 6.2% through the COVID-affected 2020-21.
India is expected to record a growth of 7.5% in financial year 2022-23, the Bank said, compared to 7% it had projected earlier. The renewed outbreak of the COVID-19 pandemic has hampered economic activity across South Asia due to fresh containment measures, it pointed out.
“South Asia’s growth outlook for fiscal year 2021 is lowered to 8.9% from 9.5%. The forecast for India is downgraded by 1.0 percentage point to 10.0%. The inflation forecast for South Asia in 2021 is raised from 5.5% to 5.8%, mainly reflecting a higher forecast for India,” the Bank’s economists averred in a supplement to its Asian Development Outlook (ADO) report for 2021.
While India’s GDP growth recovered to 1.6% in the final quarter of 2020-21, a second wave of the pandemic induced many State governments to impose strict containment measures as new COVID-19 cases peaked at more than 400,000 a day in early May, before moderating to over 40,000 in early July.
“Early indicators show economic activity resuming quickly after containment measures eased. The growth projection for FY2021, downgraded from 11% to 10%, reflects large base effects. The projection for FY2022 (2022-23), by which time much of India’s population is expected to be vaccinated, is upgraded from 7.0% to 7.5% as economic activity normalizes,” the supplement noted.
With commodity and fuel prices firming up further, the Bank also pushed up its annual inflation forecast for the Asia Pacific region to 2.4% from 2.3% in April, with price rise trends expected to firm up further to 2.7% next year. The region’s growth forecast has been moderated from 7.3% to 7.2% for this year.