ADB forecasts 7.4% growth for India in 2017-18

The Dollar Business Bureau

In an annual report released by Asian Development Bank (ADB), India's GDP growth is predicted at 7.4% in FY 2017-18. The report states that the growth rate will continue to expand to 7.6% in the successive year (2018-19).

Quoting high growth projections for India due to an expected revival in consumption and investment post demonetisation, Asian Development Outlook 2017 (ADO), a study published by ADB, sees India as Asia's engine of growth in the coming years. Predicted to grow collectively at 7% in 2017 and 7.2% in 2018, South Asia is seen as the fastest growing among all sub-regions.

Meanwhile, China's growth forecast has receded from 6.7% in 2016 to 6.5% in 2017, further declining to 6.2% in 2018 as per the predictions by ADB.

ADB's Chief Economist added that tremendous growth in the second most populous South Asian economy will be spurred by a continued commitment to economic reform. Hiked pensions and salaries of government employees would supplement a boost in consumption.

“A continued commitment to reform — especially in the banking sector — will help India maintain its status as the world’s fastest growing major economy,” he said.

A deceleration of growth to 7.1% in the previous fiscal (2016-17) was attributed to slow growth in investment combined with the impact of note-ban. The temporary impact of demonetisation is expected to wane with the normalcy restored by speedy remonetisation.

Due to strong FDI reform initiatives and opening up of new sectors that contributed to the ease of doing business, India's FDI numbers remained robust at $36.7 billion in FY 2016-17. The publication further noted that India's FY 2016-17 growth rested on agricultural growth and a fillip in government services. From 8.2% in FY 2015-16, industrial growth slowed down to 5.8% in FY 2016-17.

Exports are projected to achieve a 6% growth in the upcoming financial year. Investment is expected to be led by public sector banks, as they figure out ways to off-load stressed assets via innovative asset reconstruction methods. This calls for the government to execute expeditious solutions in the all-important banking sector, on which investment growth critically hinges.

Additionally, as the world economy recovers and commodity prices go up, inflation is forecasted at 5.2% in FY 2017-18 and 5.4% in FY 2018-19.

In the coming years, India also faces a threat from rising global oil prices, as 80% of its conventional energy needs are imported. A hike in oil prices could widen current account deficit, risk inflation and weaken the country's financial position. The report notes that FY2016 saw an increase in India's import bill by 37.6% due to rising oil prices. In response, the government aims to reduce oil imports by 10% in the next five years by enhancing domestic excavation.