The Asian Development Outlook (ADO) 2021 report has raised concerns about India’s economic recovery amid the second wave of Covid-19. Published annually, the ADO provides an economic overview of the Developing Member Countries (DMCs) of the Asian Development Bank (ADB), which includes India.
GDP Projections for India and Developing Asia
The report predicts that come Fiscal Year (FY) 2021-22, India’s Gross Domestic Product (GDP) will witness a strong rebound of 11%. This is expected due to the continued economic recovery encouraged by increased public investment, vaccine rollout, and a surge in domestic demand. However, the growth is anticipated to moderate to 7% in FY 2022-23. In contrast, for FY 2020-21, the economy is believed to have contracted by 8%.
The economic forecast for Developing Asia, a group consisting of 46 members of the ADB from various regions including Central Asia, East Asia, South Asia, Southeast Asia and the Pacific, is also positive. After a slight contraction of 0.2% last year, the growth is estimated to rebound to 7.3% in 2021-22.
Challenges Facing Developing Asia
Despite promising projections, the pandemic remains the biggest risk for Developing Asia. Significant delays in vaccine rollouts or new Covid-19 outbreaks could undermine the projected growth. Other risk factors include increasing geopolitical tensions, production bottlenecks, financial instability due to tightening conditions and long-term scarring such as potential learning losses from school closures.
Costs of Pandemic-induced School Closures
Countries resorting to distance learning amidst school closures face significant challenges. It’s only partially effective given many students’ lack of access to computers and the internet. This disruption will likely impact the skills these students acquire, reflecting negatively on their future productivity and earnings. The anticipated learning losses range between 8% in the Pacific, where schools have mostly remained open, to a staggering 55% in South Asia with its extended school closures. The future earning reductions of students in developing Asia are estimated at a colossal USD 1.25 trillion, equivalent to 5.4% of the region’s GDP in 2020.
India’s Response and Analysis
In India, increased government expenditure on health care, water, and sanitation is predicted to strengthen the country’s preparedness against future pandemics. It is also anticipated that private investment will increase on the back of improving sentiment and risk appetite, further aided by accommodative credit conditions encouraging more spending. Domestic demand is expected to remain the crucial driver of growth.
Increased vaccine rollout speed will likely boost urban demand for services. Rural demand will be spurred by strong agricultural growth and continued government support via expansion of irrigation, improvement of value chains, and increased farm loan limits. Additionally, the government’s production-linked incentive scheme will likely expand domestic production and integrate domestic manufacturing with global supply chains.
About GDP and the Asian Development Bank
GDP is an economic term that represents the total value of a nation’s annual output of goods and services. This measure gives an insight into the economic output from the consumer’s perspective. The formula to calculate GDP is Private consumption + Gross investment + Government investment + Government spending + (exports-imports).
The Asian Development Bank (ADB) was established in 1966 as a regional development bank. It has 68 members within and outside of Asia and the Pacific, and India is one of the founding members. The bank aims to promote social and economic development in Asia and the Pacific. Its headquarters are located in Manila, Philippines. As of December 31, 2019, the five largest ADB stakeholders are Japan and United States (each owning 15.6% of total shares), the People’s Republic of China (6.4%), India (6.3%), and Australia (5.8%).