ADB lowers India GDP growth outlook for this fiscal to 6.3%.

Context: India’s economy is expected to face constraints in FY 2023-24, with weak global demand and monetary policy tightening to manage inflationary pressures. Reasons for which include:

Challenges to Indian Economic Growth

  • Erratic Weather Patterns: Monsoon rainfall under the influence of a developing El Niño has led to erratic weather patterns, including flooding in certain regions and deficient rains, particularly in August. The erratic rainfall patterns have resulted in damage to the rice crop in particular and lower sowing for pulses in the kharif season.
  • High Inflation & Moderating Demand: The economy has been impacted by moderating demand and high inflation, leading to a slowdown in economic activity. 
  • Inflation, especially for energy and food, has reduced purchasing power and household consumption, particularly in urban areas. 
  • Declining Investment: Weakening credit-supported demand for capital goods indicates a decline in business investment. 
  • Trade Deficit in Goods: While services exports have shown growth, it is insufficient to offset the trade imbalance in goods. 
  • Low labour productivity is affecting the competitiveness of Indian goods and participation in global value chains. 
  • Other Challenges: Challenges include potential deterioration of banks’ asset quality, delays in fiscal consolidation, difficulties in trade agreements, and the impact of below-normal monsoon seasons.

What is the Asian Development Bank (ADB)?

  • The Asian Development Bank’s primary mission is to “foster economic growth and cooperation” among countries in the Asia-Pacific Region.
  • Headquarters: Manilla, Philippines.
  • Structure:
    • The Agreement Establishing the Asian Development Bank, known as the ADB Charter, vests all the powers of the institution in the Board of Governors, which in turn delegates some of these powers to the Board of Directors. 
    • The ADB’s highest policy-making body is its Board of Governors, which comprises one representative from each member.
    • The Board of Governors meets formally once a year during ADB’s Annual Meeting.
  • Membership: 
    • It is open to members and associate members of the United Nations Economic Commission for Asia and the Far East. 
    • It’s also open to other regional countries and non-regional developed countries that are members of the U.N. or of any of its specialised agencies. 
    • At present, there are a total of 68 members, which is made up of 48 regional and 19 non-regional members.
    • Although the majority of the Bank’s members are from the Asia-Pacific region, the industrialised nations are also well-represented. 
    • ADB’s five largest shareholders are Japan and the United States (each with 15.6% of total shares), the People’s Republic of China (6.4%), India (6.3%), and Australia (5.8%).
  • Source of Capital:
    • The ADB raises capital regularly through the international bond markets. 
    • The ADB also relies on member contributions, retained earnings from lending, and the repayment of loans for the funding of the organisation.
  • Functions:
    • The Asian Development Bank provides assistance to its developing member countries, the private sector, and public-private partnerships through grants, loans, technical assistance, and equity investments to promote social and economic development. 
    • The ADB regularly facilitates policy dialogues and provides advisory services. They also use co-financing operations that tap official, commercial, and export credit sources while providing assistance.
  • Nature of Financing:
    • The ADB provides both private financing and sovereign (public) financing. 
    • Private sector efforts focus on projects that help promote private investments in the region that will have significant development impact and will lead to accelerated, sustainable, and inclusive growth. 
    • Public-sector financing provides funding for member countries with flexibility in determining how they can achieve development goals.

PYQ 2019: With reference to Asian Infrastructure investment Bank (AIIB), consider the following statements:

1. AIIB has more than 80 member nations.

2. India is the largest shareholder in AIIB.

3. AIIB does not have any members from outside Asia.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)

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