ADB trims India's GDP growth forecast to 5.1% in current fiscal; says consumption affected by slow job growth, rural distress

  • The Asian Development Bank (ADB) on Wednesday trimmed its forecast for India's economic growth in 2019-20 to 5.1 percent saying consumption was affected by slow job growth and rural distress aggravated by poor harvest

  • In September, ADB forecast India's GDP to grow 6.5 percent in 2019-20 and 7.2 percent in the year thereafter

  • ADB said growth should pick up to 6.5 percent in the next fiscal year with supportive policies

New Delhi: Asian Development Bank (ADB) on Wednesday lowered India's economic growth forecast for FY2019 to 5.1 percent on slowing job prospects, rural distress exacerbated by a poor harvest and credit crunch.

The multilateral bank, however, expects the growth to pick up to 6.5 percent next year on supportive government policies.

"In South Asia, India's growth is now seen at a slower 5.1 percent in the fiscal year 2019 as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion in the financial sector and a credit crunch.

"Also, consumption was affected by slow job growth and rural distress aggravated by a poor harvest. Growth should pick up to 6.5 percent in the fiscal year 2020 with supportive policies," the ADB said in a supplement to the Asian Development Outlook 2019 Update.

Earlier in September, it had trimmed India's gross domestic product (GDP) growth to 6.5 percent from the earlier estimate of 7 percent. For FY2020, it had projected a GDP growth of 7.2 percent, which now has been cut to 6.5 percent.

 ADB trims Indias GDP growth forecast to 5.1% in current fiscal; says consumption affected by slow job growth, rural distress

Representational image. Reuters.

The Reserve Bank of India last week in its bi-monthly monetary policy review has cut India's GDP forecast to 5 percent from 6.1 percent citing weak domestic and external demand.

While the International Monetary Fund (IMF) slashed India's GDP growth projection to 6.1 percent from 7 percent, the World Bank lowered its estimate to 6 percent.

The GDP growth forecast for South Asia for 2019 is also cut to 5.1 percent from 6.2 percent earlier and to 6.1 percent from 6.7 percent next year (2020), the ADB said.

"These revisions reflect lowered growth projections for India at 5.1 percent in the fiscal year 2019 (FY2019, ending 30 March 2020) and 6.5 percent in FY2020 (fiscal ending in March 2021)," ADB said in the supplement.

The ADB said India's growth in the first half of the current fiscal has slipped to 4.8 percent as expansion in private consumption slowed to 4.1 percent and in investment to 2.5 percent.

Having already slowed year on year from 5.8 percent in the fourth quarter of 2018-19 to 5 percent in the first quarter of 2019-20, growth in India fell further to 4.5 percent in the second quarter of FY2019-20, the lowest quarterly rate since the last quarter of 2012, it added.

The ADB said the domestic demand has weakened significantly since late 2018.

Some tentative signs have emerged that the Indian economy is stabilising in the second half of FY2019 (ending March 2020), it said.

"Growth is expected to benefit from government policy measures in recent months, notably a corporate tax cut, divestment from some state-owned enterprises, capital injections into public banks, and policy rate reduction by a total of 135 basis points, with further measures possible in the coming months, said the ADB update supplement.

Growth in FY2020 is likely to recover thanks to this support, low oil prices, and a weakening rupee, but risks to the projections remain tilted to the downside, it said on India.

In the rest of South Asia, economic growth is on track to meet forecasts, it said.

The growth rate in China is now expected at 6.1 percent this year and 5.8 percent next year due to trade tensions and slowdown in global activity coupled with weaker domestic demand, with family wallets being hit by pork prices that have doubled relative to a year ago, ADB said.

"Growth could accelerate, however, should the United States and the People's Republic of China (PRC) come to an agreement on trade," ADB said on China.

In September, ADB had forecast GDP growth of 6.2 percent in 2019 and 6 percent in 2020.

While growth rates are still solid in developing Asia, persistent trade tensions have taken a toll on the region and are still the biggest risk to the longer-term economic outlook. Domestic investment is also weakening in many countries, as business sentiment has declined," said ADB Chief Economist Yasuyuki Sawada.

Inflation, on the other hand, is ticking up on the back of higher food prices, as African swine fever has raised pork prices significantly, Sawada said.

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Updated Date: Dec 11, 2019 15:35:20 IST