There Is No Respite From Economic Slowdown As ADB Cuts India's GDP Growth Forecast To 5.1%

Amid looming concerns surrounding the dismal economic state of the country, the Asian Development Bank (ADB), on 11 December, trimmed its forecast for India¡¯s economic growth in 2019-20 to 5.1 per cent saying consumption was affected by slow job growth and rural distress aggravated by poor harvest.

In September, ADB forecast India¡¯s GDP to grow 6.5 per cent in 2019-20 and 7.2 percent in the year thereafter.

¡°India¡¯s growth is now seen at a slower 5.1 per cent in fiscal year 2019-20 as the foundering of a major non-banking financial company in 2018 led to a rise in risk aversion in the financial sector and a credit crunch.¡±

¡°Also, consumption was affected by slow job growth and rural distress aggravated by a poor harvest,¡± it said.

ADB said growth should pick up to 6.5 per cent in the next fiscal year with supportive policies.

Recently, former Reserve Bank of India (RBI) governor Raghuram Rajan said India is in the midst of a "growth recession" with signs of deep malaise in the Indian economy that is being run through extreme centralisation of power in Prime Minister's Office and powerless ministers.

Writing down his recommendations to help the ailing Indian economy out of the ongoing slowdown in the India Today magazine, he called for reforms to liberalise capital, land and labour markets, and spur investment as well as growth.

"To understand what has gone wrong, we need to start first with the centralised nature of the current government. Not just decision-making but also ideas and plans emanate from a small set of personalities around the Prime Minister and in the Prime Minister's Office (PMO).

"That works well for the party's political and social agenda, which is well laid out, and where all these individuals have domain expertise. It works less well for economic reforms, where there is less of a coherent articulated agenda at the top, and less domain knowledge of how the economy works at the national rather than state level," Rajan wrote.

According to a SBI report, the second quarter GDP growth may further lower down to 4.2 per cent on low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure, and the growth forecast for FY20 has now come down to 5 per cent from 6.1 per cent earlier.

State Bank of India (SBI) joins all other global agencies -- the ADB, World Bank, OECD, RBI and the IMF -- in downgrading India's FY20 growth rates.

"Based on our composite leading indicator that suggests the GDP growth to slow down further from 5.0 per cent in Q1 of FY20 to 4.2 per cent on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure", the bank said in a report.

India's GDP was already at the 6-year lowest of 5 per cent in Q1.