Economy

ADB maintains India's growth forecast at 7.3%

Our Bureau New Delhi | Updated on September 26, 2018 Published on September 26, 2018

ADB maintains Indian economic growth forecast for the current fiscal at 7.3 per cent.   -  Getty Images/iStockphoto

“Growth remains stable across most of developing Asia”

The multilateral agency Asian Development Bank (ADB) on Wednesday maintained India’s growth forecast for the current fiscal at 7.3 per cent. It also expects India to grow at 7.6 per cent during next fiscal (2019-20).

Other projections

ADB’s projection is slightly different from other forecasts. In its forecast last week the global rating agency Fitch upped growth projection for the current fiscal to 7.8 per cent from 7.4 per cent. Similarly, the RBI’s estimate is 7.4 per cent and the Government feels that it could be 7.5 per cent.

However, the International Monetary Fund (IMF) cut its projection to 7.3 per cent from 7.4 per cent. India Ratings too lowered its growth projection by 20 bps to 7.2 per cent. Meanwhile. Finance Minister Arun Jaitley said on Tuesday he expects India’s economy to sustain an annual growth rate of around 8 per cent on the back of measures taken by the government such as a unified tax code and a new bankruptcy law.

“We are now starting to see the benefits of reforms that the Government of India has implemented over the past year as the economy recovers from a brief adjustment to these policies including the Goods and Services Tax (GST),” ADB Chief Economist Yasuyuki Sawada said while adding the agency expects growth to maintain its strength and pick up next year as the economy continues to adjust to the reforms and investor sentiment improves.

The positive signs

In its Asian Development Outlook (ADO) 2018, the agency noted a strong 8.2 per cent during first three months of the current fiscal. During this period, private consumption grew by 8.6 per cent, with rural demand recovering as the effects of demonetisation waned and rural incomes increased.

Investment grew by 10 per cent in a second consecutive quarter of double-digit growth, spurred mainly by higher government capital expenditure on new infrastructure and an improved business environment. The manufacturing sector benefited from a low base and resolution of GST teething problems while construction received impetus from rural housing and creation of new infrastructure. Growth in services moderated marginally from the previous quarters as some sectors like trade, transport, and communication services continue to adjust to the GST.

“Domestic demand will continue to drive growth in FY2018 as rural consumption benefits from favorable weather, higher procurement prices for crops and measures taken to bolster farmers’ income. Private investment is also expected to boost India’s growth with new private sector projects spurring economic activity and creating jobs. Net exports, however, are expected to drag on growth, with imports likely to expand more than exports,” the report mentioned. It expects retail inflation to touch 5 per cent which is slightly higher than April’s projection of 4.6 per cent as rising global oil prices and a weaker Indian rupee push retail prices for petroleum products higher.

It also said that strong growth in recent quarters will be balanced over the rest of fiscal year by higher oil prices and policy rates, and by anticipated spillover from global trade turmoil and slower global capital flows. However, “growth is expected to accelerate in FY19 due to improving investment performance as well as beneficial GST impacts including additional revenue, more public investment, and higher corporate productivity as obstacles to business are removed. Progress on resolution of some of the banking sector stress would also aid growth by improving credit flows and boosting investment,” the report said.

While export growth will likely remain strong during current fiscal as the currency becomes more competitive and the business climate improves, the risk of intensifying global trade conflict could hurt the sector’s performance. Imports are likely to outpace exports due to higher oil prices and revival of domestic demand, resulting in the current account deficit (CAD) widening to 2.4 per cent of gross domestic product (GDP) which might widen to 2.9 per cent during next fiscal. CAD implies shrinking value of a country’s net foreign assets, which means less earnings and more payments in foreign currency.

ADB’s projection for CAD is slightly lower than other estimates. Moody’s estimate this deficit at 2.5 per cent of GDP in the fiscal year ending March 2019, from 1.5 per cent in fiscal 2018, driven by higher oil prices and robust non-oil import demand SBI’s estimate is 2.8 per cent of GDP.

Published on September 26, 2018
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