India's economy will shrink 9% this fiscal

New Delhi: The Asian Development Bank (ADB) on Tuesday projected a nine per cent contraction of the Indian economy in the financial year 2020-21, revising its outlook within three months as the Covid-19 situation continues. Earlier in June, ADB predicted a four per cent contraction in the country's GDP in the current fiscal.

The forecast comes just over a fortnight after the country reported a 23.9 per cent contraction in its Gross Domestic Product (GDP) for the April-June quarter. The ADB report noted that the Indian economy, having weakened even before the pandemic struck, the government enjoyed little fiscal space to respond.

"Indian GDP is expected to fall by nine per cent in the whole of this fiscal year and then grow by 8.0 per cent in the next," it said. In South Asia, ADB says that the sub-region is now expected to shrink by a steep 6.8 per cent in 2020 and rebound by 7.1 per cent in 2021.

It noted that as the Coronavirus (Covid-19) continued to expand regionally and globally, containment measures to counter the pandemic stifled economic activity. Domestic demand and production plummeted, plunging global economic activity and slashed external demand, it added.

Governments in the region responded with diverse policy measures, it said, citing the 'Developing' Asian countries. It noted that after nose diving at first, capital flows, financial markets, and currencies have recovered. Citing recent data, the ADB report said that the crisis may have bottomed out, but the picture across the region is mixed. It noted the different economic trajectory in China and India, as the former has moved towards a nascent recovery (as it has reported a total of 85,202 cases) while India continues to struggle (as the second worst-hit by the pandemic with over 49 lakh cases so far).

"In particular, the two largest economies in the region are diverging as nascent recovery in the People's Republic of China (PRC) contrasts with continued fragility in India," it said. The report said that after containing its domestic outbreak relatively rapidly, China saw growth recover from 6.8 per cent contraction in the first quarter to 3.2 per cent growth in the second. By contrast, the outbreak in India has intensified since April, spreading fast from cities to rural areas.

The hard and prolonged lockdown caused output to contract by 23.9 per cent in the April-June quarter, and various high-frequency indicators, while improving somewhat, show continued economic weakness, it added.