NEW DELHI: The Asian Development Bank (ADB) has lowered its projection for India’s gross domestic product (GDP) growth for 2017-18 to7 per cent from its earlier forcast of 7.4 per cent, indicating a slowdown in private consumption, manufacturing output and business investment.
The low growth projection for the current fiscal, lower than even the 7.1 per cent recorded in 2016-17, is worrying. Its revised growth forecast for FY19, which is also 7.4 per cent, is again lower than its earlier projection of 7.6 per cent made in July.
Notably, the multilateral aid agency raised its forecast for Chinese economic growth to 6.7 per cent in 2017 from 6.5 per cent and upped its estimate for 2018 to 6.4 per cent from 6.2 per cent.
In India’s case, weakness in private consumption, manufacturing output, and business investment has resulted in lowering the short-term growth outlook for the country, the report stated. Further, the fixed capital formation grew by a sluggish 1.6 per cent.
According to an update on its Asian Development Outlook 2017, the fall in India’s GDP growth at 5.7 per cent in the April-June quarter of 2017-18 was “due to lingering effects from demonetisation and transitory challenges related to the GST regime”. ADB expects these short-term disruptions to dissipate allowing these initiatives to generate growth dividends over the medium term.
On the positive side, it has projected growth in the long run thanks to reforms, low inflation and anticipated wage hikes. “India’s ambitious reforms agenda will lead to higher long-run growth for its economy,” said Yasuyuki Sawada, chief economist, ADB. “Investment growth, however, is likely to remain muted in 2017-18 as budgetary constraints limit government expenditure,” the bank stated.
Manufacturing is likely to bounce back as the sector adjusts to the new tax regime. ADB also predicts that government consumption and services will spur economic activity. Inflation is expected to average 4 per cent in the current year and 4.6 per cent in the next, significantly lower than the previous estimates of 5.2 per cent and 5.4 per cent, respectively. It has also pointed out that strong global growth and an improved business climate will help India’s exports grow at a faster pace in 2017-18 and 2018-19.