India is expected to be the fastest growing economy in Asia and will reverse two years of declining growth to clock 7.3 per cent rise in GDP in the current fiscal and further accelerate to 7.6 per cent in FY20, the Asian Development Bank said in its forecast for the region.
The dip in growth to 6.6 per cent in FY17 was in part due to the lingering effects of demonetisation that impacted the informal sector in the first half of FY17 and teething issues related to implementation of the goods and services tax (GST), the ADB said in the latest Asian Development Outlook (ADO) 2018 report. It expects various reforms measures to lift growth.
According to India’s official estimates, the economy picked up pace to 7.2 per cent in October-December 2017 quarter from 6.5 per cent in July-September quarter and 5.7 per cent in April-June quarter. For the entire FY18, the economy is expected to grow 6.6 per cent .
The Reserve Bank of India expects 7.4 per cent growth in FY19.
“Despite the short-term costs, the benefits of reform—such as the recently implemented GST—will propel India’s future growth,” said Yasuyuki Sawada, ADB’s chief economist, in a statement.
“Robust foreign direct investment flows attracted by liberalized regulations and the government’s steps to improve the ease of doing business will further bolster growth.” China is forecast to slow down from 6.9 per cent in 2017 to 6.6 per cent this year and further 6.4 per cent in 2019.
“India would remain the fastestgrowing country across Asia,” ADB India country director Kenichi Yokoyama said but flagged rising NPAs and crude prices spiking to over $70 a barrel as risks
India’s growth will get support from measures to bolster farmers’ purchasing power through higher procurement prices, agriculture market reforms and investments in irrigation and logistics, the Manilabased bank said. “Investment revival is expected to continue, albeit at a modest rate, as firms and banks strive to improve their balance sheets, and capacity utilization levels pick up,” it said in a statement.
Inflation is forecast to rise to 4.6 per cent in FY18 and 5 per cent in FY19 due to firmer global commodity prices and stronger domestic demand. “The uptick in inflation along with deferment of fiscal consolidation and expected hikes in the US Federal Reserve’s interest rate has reduced the room for policy rate cuts to stimulate growth,” it said.
A pick-up in growth in advanced economies will likely help exports grow at a healthy rate, but the ADB added that though protectionist trade measures by the United States are yet to impact trade, they pose a risk. “However, further action and retaliation against it (US trade tariffs) could undermine the business and consumer optimism that underlies the regional outlook (for Asia),” it said.
US tariff hikes may not impact India much but there is a “need to be cautious,” Yokoyama said.
Source – Economic Times.