India's economic growth is expected to rebound to 7.3 percent this fiscal and further to 7.6 percent in 2019-20 with increased productivity post-Goods and Services Tax (GST) and investment revival due to banking reform, the Asian Development Bank (ADB) said on 11 April, Wednesday.
The economy grew 6.6 percent in the last fiscal as it battled the lingering effects of demonetisation in 2016, businesses adjusting to GST in 2017, and a subdued agriculture.
The ADB’s growth projection of 7.3 percent this fiscal is in line with that of rating agency Fitch, but a tad lower than the Reserve Bank of India's (RBI’s) forecast of 7.4 percent.
In its Asian Development Outlook (ADO), 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.
In sum, growth is forecast to pick up to 7.3 percent 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.ADO
Growth is expected to pick up further to 7.6 percent in FY2019 as efforts to strengthen the banking system and continued corporate deleveraging are likely to bolster private investment.
"Also set to catalyse growth are benefits from the GST 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.
The 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 manoeuvring 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 FY2018, albeit with some risk of monetary tightening," it said.
It projected inflation to average 4.6 percent in FY2018 (2018-19), rising to 5.0 percent in FY2019 with further firming of global commodity prices and strengthening of domestic demand.
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