India’s economic growth is expected to rebound to 7.3 per cent this fiscal and further to 7.6 per cent in 2019-20 with increased productivity post GST and investment revival due to banking reform, the Asian Development Bank (ADB) said on Wednesday. The economy grew 6.6 per cent in the last fiscal as it battled the lingering effects of demonetisation in 2016, businesses adjusting to Goods and Services Tax (GST) in 2017, and a subdued agriculture.
The ADB’s growth projection of 7.3 per cent this fiscal is in line with that of rating agency Fitch, but a tad lower than RBI’s forecast of 7.4 per cent. 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.
“Growth in South Asia remains among the world’s fastest, driven by a recovery in India, the region’s largest economy. Indian growth is expected to pick up to 7.3 per cent in fiscal year (FY) 2018 and 7.6 per cent in FY2019, following the estimated 6.6 per cent in FY2017,” said the ADB report.
“The impact of the demonetization of high-value banknotes has dissipated and the full implementation of the goods and services tax will bolster growth through 2019,” it added.
The bank also predicted that Asian consumers and commodity price rises will fuel higher inflation in the region.
“Regional consumer price inflation is projected to accelerate to 2.9 per cent in 2018 and 2019, from the 2.3 per cent registered in 2017. Inflation projections for the next two years, however, are well below the 10-year regional average of 3.7 per cent,” said the ADB.
The Asian Development Outlook (ADO) said the prospects for policy stimulus remain limited and there is risk of tight interest rate regime.
“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 tolerance for slightly higher inflation and recognition of the need to nurture recovery. Consequently, the status quo is likely to hold in FY 2018, albeit with some risk of monetary tightening,” it said.
It projected inflation to average 4.6 per cent in FY 2018 (2018-19), rising to 5 per cent in FY 2019 with further firming of global commodity prices and strengthening of domestic demand.
(With PTI inputs)