India's gross domestic product (GDP) is projected to slow to 4.0 per cent in fiscal year (FY) 2020 ending on March 31, 2021 due to a weak global environment and continued efforts to contain the COVID-19 pandemic in that country, the Asian Development Bank (ADB) said in a new report released on Friday.
The forecast assumed that the COVID-19 pandemic dissipates and full economic activity resumes from the second quarter of FY2020, said the report, Asian Development Outlook (ADO) 2020.
The ADO forecasted recovery in India's economy in FY2021, with a growth of 6.2 per cent, supported by government reform. The country's economy recorded a 5.0 per cent growth in FY2019.
ADO is the annual flagship economic publication of the Manila-based bank, reports Xinhua.
"The COVID-19 pandemic jeopardizes global growth and India's recovery. But India's macroeconomic fundamentals remain sound, and we expect the economy to recover strongly in the next fiscal year," said ADB Chief Economist Yasuyuki Sawada.
He added that Indian authorities have acted swiftly to shore up the economy hit by the pandemic.
"Ongoing reforms to personal and corporate taxes and measures to strengthen agriculture and the rural economy and alleviate financial sector stress will help accelerate India's recovery," Sawada said.
"Risks to the outlook are firmly on the downside," warned the report, adding that a prolonged pandemic would push the global economy into deep recession and further slow the Indian growth. "Were the virus to spread widely within India, economic activity would be severely constrained."
In late March, the ADO said the government of India took prompt action to strengthen the health system and support the poor and vulnerable. The Reserve Bank of India has cut its policy rate to the lowest ever and committed to using all instruments to fight the pandemic.
Moreover, it said that government initiatives introduced in late FY2019 and in the FY2020 budget will aid recovery and sustain growth in the coming years.
The report also forecasted inflation of 3.0 per cent in the country's FY2020 due to decreased demand and lower oil prices, and then rise to 3.8 per cent in FY2021 as domestic demand improves.
"With inflation expected to ease into the target zone soon, the central bank will have more headroom to support the economy," added the report.
According to the report, the Indian government had committed in its FY2020 budget to a moderate path of fiscal consolidation, lowering the fiscal deficit to the equivalent of 3.5 percent of GDP in FY2020, 3.3 percent in FY2021, and 3.1 percent in FY2022.
The report predicted that India's fiscal deficit is unlikely to shrink as budgeted. However, it said that the COVID-19 pandemic requires a fiscal stimulus to mitigate its effects and facilitate recovery.