India to grow 7.3% this fiscal, 7.6% in next: ADB
What's the story
India's economic growth is expected to rebound to 7.3% this fiscal and further to 7.6% in 2019-20 with increased productivity post-GST and investment revival due to banking reform said the Asian Development Bank (ADB). The economy, however, grew 6.6% in the last fiscal as it battled demonetization's lingering effects in 2016, businesses adjusting to GST in 2017, and a subdued agriculture. Here's more.
Growth
Growth to pick up as new tax regime improves productivity
The ADB's growth projection of 7.3% this fiscal is in line with that of rating agency Fitch, but a tad lower than RBI's forecast of 7.4%. In its Asian Development Outlook, 2018, Manila-based ADB said the growth will pick up as the new tax regime improves productivity and as banking reform and corporate deleveraging take hold to reverse a downtrend in investment.
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ADB forecasts growth for FY2018
"In sum, growth is forecast to pick up to 7.3% in FY2018 on improved rural consumption, a modest uptick in private investment, and less drag from net exports. Urban consumption growth will remain stable, and impetus from public investment modest," ADB said.
FY2019
Growth expected to pick up further to 7.6% in FY2019
Growth is expected to pick up further to 7.6% in FY2019 as efforts to strengthen the banking system and continued corporate deleveraging are likely to bolster private investment. "Also set to catalyze growth are GST benefits as it mitigates geographic fragmentation and adds revenue to the exchequer, as well as further progress on fiscal consolidation and reform to promote FDI," it said.
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Prospects for policy stimulus remain limited
The Asian Development Outlook (ADO) said the prospects for policy stimulus remain limited and there is the risk of tight interest rate regime.
Fiscal consolidation
Odds of rate hike are low with the central bank
ADO said, "The deferment of fiscal consolidation, upside risks to inflation, and expected hikes in US interest rates in 2018 squeeze maneuvering room for policy rate cuts to stimulate growth." "At the same time, the odds of a rate hike are low with the central bank indicating the tolerance for slightly higher inflation and recognition of the need to nurture the recovery," it said.
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ADO projected inflation to average 4.6% in FY2018
"Consequently, the status quo is likely to hold in FY2018, albeit with some risk of monetary tightening," the ADO said. It projected inflation to average 4.6% in FY2018, rising to 5.0% in FY2019 with further firming of global commodity prices and strengthening of domestic demand.