Asian Development Outlook, 2021

News: According to the report Asian Development Outlook (ADO) 2021, the second wave of Covid-19 can put India’s economic recovery at “risk”. ADO is a series of annual economic reports on the Developing Member Countries (DMCs) of the Asian Development Bank (ADB).

GDP Projections:

  • For India: Gross Domestic Product (GDP) will rebound strongly by 11% in Fiscal Year (FY) 2021-22 due to continued economic recovery boosted by increased public investment, vaccine rollout, and a surge in domestic demand. India’s economic growth to moderate to 7% in FY 2022-23. The economy is expected to have contracted by 8% in FY 2020-21 in line with the government’s second advance estimate.
  • For Developing Asia: The economic growth is set to rebound to 7.3% in 2021-22. This follows a 0.2% contraction last year. Developing Asia comprises 46 members of ADB list on the basis of geographic group. These include new industrialized economies, countries in Central Asia, East Asia, South Asia, Southeast Asia and the Pacific. India is also part of Developing Asia.

India specific detailed findings:

  • Increased government expenditure on health care, water, and sanitation will strengthen the country’s resilience against future pandemics.
  • Private investment is expected to pick up on improving sentiment and risk appetite, as well as accommodative credit conditions (i.e. making money less expensive to borrow and encouraging more spending). Domestic demand is expected to remain the main driver of growth.
  • A faster vaccine rollout will boost urban demand for services, while the rural demand will be boosted by robust agriculture growth and continued government support to farmers by expanding irrigation, improving value chains, and increasing farm loan limits.
  • The government’s push to the manufacturing sector through the production-linked incentive scheme will expand domestic production and help integrate domestic manufacturing with global supply chains.

Challenges:

  • Pandemic remains the biggest risk for the region (Developing Asia) as potential delays in vaccine rollouts or significant new outbreaks could undermine growth. Increasing geopolitical tensions, production bottlenecks, financial turmoil from tightening financial conditions, and long-term scarring like learning losses due to school closures are among other risk factors.
  • Countries are using distance learning, but this is only partially effective as many students lack access to computers and the internet. These disruptions will affect the skills students acquire and, eventually, their productivity and earnings as future workers.
  • Learning losses range from 8% of a year of learning in the Pacific, where schools have mostly stayed open, to 55% in South Asia, where school closures have been longest.
  • The present value of students’ future earning reductions is estimated at USD 1.25 trillion for developing Asia, equivalent to 5.4% of the region’s GDP in 2020.