THE Asian Development Bank (ADB) projects India's Gross Domestic Product (GDP) will rebound strongly by 11 per cent in 2021-22 due to continued economic recovery boosted by increased public investment, vaccine rollout, and a surge in domestic demand. However, it cautioned that the surge in COVID-19 cases and irregular vaccine deployment could hurt the recovery.

In its flagship Asian Development Outlook (ADO) 2021, ADB forecasts India's economic growth to moderate to 7 per cent in FY22 as base effects disappear. The economy is expected to have contracted by 8 per cent in FY21 in line with the government's second advance estimate.

India's economy faced its worst contraction in FY21 due to the COVID-19 shock. With large government stimulus and the ongoing vaccination drive, economic activity will continue its recovery started from the third quarter of FY21 and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services, said the ADB.

"The government's boost to public investment through its infrastructure push, incentives for manufacturing, and continued support to boost rural incomes will support India's accelerated recovery," said ADB Country Director for India Mr Takeo Konishi.

An uncertain pandemic trajectory with a prolonged second wave despite the vaccination push could affect India's economic normalisation, it warns.

The forecast, however, expects the economic impact of the second wave to be relatively muted compared to the first wave in line with global experience. Other downside risks include further tightening of global financial conditions on fast recovery in developed countries, which would apply pressure on India's market interest rates.

Inflation, after rising to 6.2 per cent in FY21, is projected to moderate to 5.2 per cent in FY22 as good harvests and supply chain recovery contain domestic food inflation. It is further expected to ease to 4.8 per cent in 2022-23 on moderating domestic demand as the economy returns to normal.