India to grow at 7.8 per cent in 2015-16; surpass China: ADB

Source: Economic Times

The Asian Development Bank has forecast that India’s growth rate could surpass that of China owing to the government’s pro-investment attitude, which, coupled with an improvement in macroeconomic indicators and forward movement in resolution of structural bottlenecks, has propelled the country back on foreign investors’ radar.

India is set to expand 7.8 per cent in 2015-16 compared with 7.4 per cent growth in the current fiscal. This momentum is expected to build to 8.2 per cent growth in 2016-17, aided by expected easing of monetary policy and a pickup in capital expenditure. In the case of China, further slowing of investment is expected to diminish growth to 7.2 per cent in 2015-16 and 7 per cent in the next fiscal.

“India is expected to grow faster than the People’s Republic of China in the next few years. The government’s pro-investment attitude, improvements in the fiscal and current account deficits, and some forward movement on resolving structural bottlenecks have helped improve the business climate and make India attractive again to both domestic and foreign investors,” said ADB’s chief economist Shang-Jin Wei.

The Manila-based multilateral lender said India’s prospects look promising as policy measures introduced by the government have pushed the central bank’s business expectation index to its highest level in two years while identifying recent measures including accelerating environment clearances for infrastructure projects, easing the process of land acquisition for infrastructure and industrial corridors, allowing auction of coal mines to the private sector and easing the compliance burden of labour laws on small and medium-sized industries as key drivers.

The impetus given to capital expenditure in the recent budget will improve the expenditure mix significantly and bodes well for growth prospects, it said.

Giving a thumbs up to the new Monetary Policy Framework announced in the budget, ADB said the measure will help restrain inflation and improve the coordination between monetary and fiscal policy.

On external sector, the bank’s chief economist said that the Indian government and the Reserve Bank of India have been trying to build up reserves and frame policies to monitor risk.

“India is in a stronger position today than what it used to be. The government is making effort to increase FDI to deal with financial instability,” Shang-Jin said. The bank said the country’s most pressing policy challenge is to promote cities as engines of economic growth and jobs. “To fully reap the benefits of urbanisation, the government must make further efforts to coordinate urban and industry planning to attract industries into cities, and provide the necessary supporting infrastructure, ” it said.

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