With note ban blues over, ADB pegs growth at 7.4% this fiscal year

Shrugging off the impact of demonetisation, the economy is expected to grow by 7.4 per cent in 2017-18 and 7.6 per cent in the next fiscal, according to the latest report by the Asian Development Bank (ADB).

“The impact of the demonetisation of high value banknotes is dissipating as the replacement banknotes enter circulation,” said the ADB in its Asian Development Outlook, 2017 that was released on Thursday.

The economy is estimated to have grown by 7.1 per cent last fiscal and the Economic Survey has forecast GDP growth between 6.75 per cent and 7.5 per cent in 2017-18.

The ADB’s latest forecast is, however, slightly lower than its estimate in the supplement to its Asian Development Outlook 2016 Update report in December last year, where it pegged GDP growth at 7.8 per cent this fiscal. India will still remain the fastest growing major economy in the world.

It expects growth to get a boost from the roll out of the GST that should lower prices for capital goods, deleveraging by the private sector and strengthening of public sector banks.

It also remains upbeat that demonetisation is likely to have a positive impact in the medium term.

“Along with the implementation of the goods and service tax, demonetisation will widen the tax net and improve tax compliance.

“With more people channelling their savings into the banking system, banks will have more money to lend at lower rates,” it said, adding that this would in turn improve their profitability and capacity to lend.

The ADB report said that stronger consumption and fiscal reforms are also expected to improve business confidence and investment prospects in the country.

“Public investment will continue to be an important driver of growth as private investment remains listless,” it said.

It also expects inflation to rise this fiscal from 4.7 per cent in 2016. It has pegged inflation at 5.2 per cent in 2017-18 and 5.4 per cent in 2018-19.

“Global oil prices are forecast to rise by 20 per cent in the fiscal…Higher procurement prices for pulses and wheat pose, along with an uptick in rural wages, upside risks to the forecast for food inflation,” said the report.