The recent Asian Development Outlook (ADO) report by the Asian Development Bank (ADB) indicated a contraction of 4% in the Indian economy during the financial year 2020-21. The ADO, which delves into economic and development matters in developing Asian nations, had earlier projected a growth of 4% for India’s economy during this period.
Reasons for Economic Contraction
The global health crisis resulting from Covid-19 is cited as the main trigger for the contraction. The lockdown measures introduced in late March 2020 led to an abrupt halt in South Asia’s economic activities. This standoff disrupted the supply chain and slowed down the Gross Domestic Product (GDP) to 3.1% in the last financial quarter (January-March) of 2019-20. This rate was the slowest since 2003.
General economic growth also decreased to 4.2% in 2019-20 due to contraction in both exports and investments. Other factors contributing to the plunge included the Purchasing Managers’ Index hitting record lows in April 2020 and the exodus of migrant workers from cities leading to a depletion of the workforce.
Growth Projections for Developing Asia
Developing Asia comprises over 40 ADB member countries including India. The growth forecast for this region has been revised from 2.2% in April 2020 to a mere 0.1%. This is expected to be the slowest growth since 1961. In contrast, China is expected to register a positive growth of 1.8% in 2020-21.
No V-Shaped Recovery
Although some economic activities are slowly resuming as lockdowns ease, the adverse impact of the Covid-19 pandemic will continue to be felt throughout Asia and the Pacific. Even with an improved growth outlook, the recovery will not follow a quick ‘V’ pattern.
Potential Challenges
One of the major concerns plaguing economists and policymakers is the possibilities of multiple waves of Covid-19 outbreaks. This could exacerbate sovereign debt and potentially lead to a financial crisis. The risk of escalating trade tensions between the United States and China also looms large.
About Asian Development Bank
Established on December 19th, 1966, the Asian Development Bank is a regional development bank with 68 members including India, a founding member. As of December 31, 2019, Japan and the United States were its largest shareholders, each holding 15.6% of total shares, followed by China (6.4%), India (6.3%), and Australia (5.8%). Headquartered in Manila, Philippines, ADB’s mission is to foster social and economic development in Asia and the Pacific.
Way Forward
India needs to implement policy measures to mitigate the negative impacts of Covid-19, avoid subsequent outbreaks, and revive its economy. Key areas to focus on include improving the supply chain disrupted due to the lockdown and fostering a labour market recovery.
Last Modified: February 7, 2024