India’s GDP forecast suffered a further downgrade by various agencies. Recently, Asian Development Bank (ADB) cuts India’s GDP forecast from 6.5% to 5.1% for FY 2019-20. India’s Q2 GDP growth rate stood at 4.5% for FY 2019-20.
Reasons for Forecast Cut
The ADB accounts rural distress, the credit crunch and low job opportunities for the cut. The rural distress continues due to low farmers income amid inflation and slow job growth rate resulted in decreasing consumption expenditure, slackening the demand.
The major reason for such a forecast is risk aversion in the financial sector due to the break down of a major non-banking financial company in 2018 that resulted in a credit crunch. However, the ADB projects that the GDP growth rate will rise to 6.5% in FY 2020-21 because of supportive government policies such as corporate tax rate cut, divestment form state enterprises, low oil prices and stronger INR. Also, the injection of capital in public sector banks and policy rate reductions will help in reviving the economy.
ADP made the first cut in GDP growth rate projection in September and reduced it from 7% to 6.5%. Also, the GDP growth rate for FY 2020-21 is bought down to 6.5% as against its earlier estimation of 7.2%. India experienced the lowest GDP growth rate of 4.5% in quarter two of 2019-20, which is lowest since 2012. It stood at 5% in the last quarter of FY 2018-19. ADB said in one of its supplements that India’s GDP growth rate came down to 4.8% owing to a fall in private consumption to 4.1% and investment to 2.5%.
International Monetary Fund has trimmed India’s GDP forecast to 6.1% from 7% against the World Bank’s estimate of 6%. Besides, The Reserve Bank of India reduced the GDP forecast from 6.1% to 5% in its monetary policy review. On the other hand, ADB lowered its GDP projections for China from 6.2% to 6.1% due to trade tensions among China and the USA. It estimated next year’s GDP growth rate at 5.8%.
In all, the ADB still seemed positive for the future because of the policy changes made by the Indian government.