With the global slowdown continuing to weigh on India’s exports, the Asian Development Bank (ADB) on Wednesday pegged downwards the country’s growth rate for the next fiscal to 7.4 per cent, from 7.6 per cent this year, saying further reforms will help India remain one of the fastest growing economies in the world.
“India’s economy will see a slight dip in growth in FY (fiscal year) 2016 (from April 1, 2016, to March 31, 2017). The economy will again accelerate in FY 2017 as the benefits of banking sector reforms and an expected pickup in private investment begin to flow,” ADB said in a release in Hong Kong.
ADB’s growth forecast of 7.4 per cent for 2016-17 is lower than its earlier projection of 7.8 per cent.
“In its latest Asian Development Outlook, ADB projects India’s gross domestic product (GDP) to grow 7.4 per cent in FY2016, slightly below the FY2015 estimate of 7.6 per cent. In FY2017 growth is forecast to rise 7.8 per cent,” the statement added.
ADB said the weak global economy will continue to weigh on exports in the next fiscal, offsetting a further pickup in domestic consumption, partly due to an impending salary hike for government employees.
“India is one of the fastest growing large economies in the world and will likely remain so in the near term,” ADB’s chief economist Shang-Jin Wei said.
“The potential growth of the country can be raised further if it can successfully implement necessary reforms including unifying the tax regime, improving labour market regulations as opening further to foreign direct investment and trade,” Wei added.
The finance ministry’s Economic Survey 2015-16 tabled in parliament last month has pegged India’s growth for the next fiscal in the 7-7.75 per cent range.
ADB also said that after two years of decline, consumer inflation is likely to rise, fuelled by the salary hike for government employees and a mild pick-up in global oil prices. Inflation is expected to average 5.4 per cent in next fiscal, rising to 5.8 per cent in 2017-18.
“The government is expected to maintain its ongoing fiscal consolidation efforts, with the deficit cut to 3.5 per cent of GDP in FY2016, supported by tax revenue growth and asset sales,” the multilateral lender said.
ADB projected a recovery in India’s exports during the 2017-18 fiscal as large economies show a mild growth rebound, and an improved business environment in the country with government policy actions in place.
“However, India still faces significant challenges to finance the infrastructure it needs to deliver sustainable growth, with funding requirements estimated at around $200 billion a year through FY2017,” it said.
State-run banks’ non-performing assets (NPAs), or bad loans, and an over-leveraged corporate sector leave limited scope for more private investment in infrastructure and highlight the need for policy actions, the report added.
However, ADB also said that public investment would remain strong in the next fiscal and stronger public sector banks will help bring an increase in bank credit and boost private spending in the 2017-18 fiscal.