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ADB trims FY20 growth forecast to 7% from 7.2%

ADB trims FY20 growth forecast to 7% from 7.2%

The Asian Development Bank (ADB) has trimmed India’s growth forecast for the current financial year to 7% from 7.2% estimated earlier.

“India is expected to grow by 7% in 2019 and 7.2% in 2020, slightly slower than projected in April because the fiscal 2018 outturn fell short,” the Manila-based multilateral institution said on Thursday in its supplement to the Asian Development Outlook 2019.

For the South Asian region, ADB said the outlook remains robust, with growth projected at 6.6% in 2019 and 6.7% in 2020.

In April, the bank had lowered India’s growth forecast for 2019-20 to 7.2% from 7.6% estimated earlier, owing to moderation in global demand and likely shortfall in revenue on the domestic front.

Last month, Fitch Ratings too cut India’s gross domestic product (GDP) growth forecast for FY20, to 6.6% from 6.8% earlier, as manufacturing and agriculture sectors showed signs of slowing down over the past year.

GDP growth in India in the fourth quarter of FY19 declined to 5.8% year-on-year, down more sharply than expected from 6.6% in the previous quarter. Annual GDP growth decelerated to 6.8% in FY19 from 7.2% in FY18.

However, ADB expects growth to inch up again to 7.2% in FY21, helped by recent reforms to improve the business climate, strengthen banks and relieve agrarian distress. “Agriculture is expected to grow at a healthy rate as current weather trends indicate a normal monsoon,” it said.

The bank has also revised downward India’s inflation forecast by 0.2 percentage points to 4.1% in FY20 and 4.4% in FY21, on account of a smaller-than-expected uptick in food inflation, a strengthening Indian rupee since October 2018 and a lower GDP growth forecast.

TRADE IMPACT The bank said that the US’ decision to end preferential trade treatment for India under its Generalized System of Preferences will have minimal effect as it benefited only 1.8% of all Indian exports. However, moderation in growth prospects for advanced economies could adversely affect tradable services, even as this drag on growth will be mitigated by a more competitive currency and benign oil prices, it said.

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