The Asian Development Bank (ADB) on Wednesday cut its India growth forecast for the financial year ending March 2020 to 5.1%, citing the credit crunch in the economy and a rise in risk aversion in the financial sector caused by the fall of infra lending major IL&FS last year.
“Consumption was affected by slow job growth and rural distress aggravated by a poor harvest,” the bank said in a report. In September, ADB had forecast India’s GDP for FY20 to grow 6.5%.
The bank also said that growth—helped by supportive policies—is expected to pick up to 6.5% in the year ending March 2021. It had said earlier that growth would be 7.2% in FY21.
It sees recent policy measures such as the reduction in corporate tax, capital injections in public banks, and the 135-basis-point reduction in monetary policy, as boosting growth in the next fiscal. The bank says growth 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”.
The ADB also trimmed its growth forecast for ‘developing Asia’ owing to the slowdown in India and China.
“Growth in the People’s Republic of China (PRC) and India is weighed down by both external and domestic factors,” the bank said. It now sees GDP in the region growing at 5.2% in FY20 and FY21; in September, it had forecast 5.4% for this fiscal and 5.5% for the next.
“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.