The Asian Development Bank (ADB) recently released the Asian Development Outlook 2019. This report provides an in-depth analysis of economic performances in the Asia and Pacific region, focusing prominently on India. ADB has revised India’s growth forecast for 2019-20 to 7.2%, which is a decline from their previously estimated 7.6% in December 2018. This adjustment was primarily due to a slower-than-expected pickup in investment demand. However, it is predicted that the growth rate will rise to 7.3% in 2020-21.
Comparative Analysis
ADB is the first multilateral lending agency to slash India’s growth estimate. Interestingly, the International Monetary Fund (IMF) and the Reserve Bank of India (RBI) had earlier projected growth rates of 7.5% and 7.4% respectively. Despite the reduction in growth forecast by ADB, India is still expected to maintain its position as the fastest-growing major economy. To put things into perspective, China’s projected growth rate stands at just 6.3% for 2019.
Key Growth Drivers
The strong growth trend in India’s economy can be attributed to robust household spending and solid corporate fundamentals. Factors such as income support to farmers, increases in procurement prices for food grains, tax reliefs for taxpayers earning less than Rs 5 lakh, and declining fuel and food prices have significantly driven household spending.
In the corporate world, increased utilization of production capacity by firms, decreasing levels of stressed assets held by banks, and easing of credit restrictions on some banks are contributing to healthy investment growth rates.
It is forecasted that imports will rise, primarily because of stronger domestic demand. However, a growth slowdown in India’s key export destinations might negatively impact export growth rates.
Current Account Deficit and Inflation
The current account deficit is projected to slightly widen to 2.4% of GDP in FY2019 and further to 2.5% of GDP in FY2020. Despite this, the deficit is expected to be comfortably financed by capital flows, as India continues to be a popular destination for foreign investment. On the inflation front, it is expected to average around 4% in the first half of FY2019. This could allow the Reserve Bank of India to lower policy rates further, thus increasing credit.
| Year | Growth rate |
|---|---|
| 2019-20 | 7.2% |
| 2020-21 | 7.3% |
About Asian Development Bank (ADB)
Established on 19 December 1966, ADB is a regional development bank headquartered in Manila, Philippines. Its primary aim is to facilitate social and economic development in Asia. Currently, ADB boasts 67 members, with 48 being from within Asia and the Pacific and 19 from outside. Japan holds the largest proportion of shares in ADB, followed by the USA.
Potential Risks and Concerns
The growth forecast comes with its own set of risks and uncertainties. These include a potential decline in global demand as financial conditions tighten, escalating global trade tensions, and a weak economic outlook in industrial countries. Domestically, the growth could be hindered if there is any shortfall in tax revenues or disruptions affecting the resolution of issues with bank and corporate balance sheets. Moreover, rising disaster risks and costs, especially in Asia, underline the need for suitable policy interventions to prevent disaster losses from spiraling out of control in the future. Therefore, spending on disaster prevention should be prioritized over disaster response strategies.
