Despite slower growth in the China that is having an impact in many countries across Asia, India’s booming economy is expected to grow at near 8 percent by 2017, according to the Asian Development Bank’s Asian Development Outlook 2016.
“The region’s two giants are headed in opposing directions, with the People’s Republic of China slowing down as growth in India picks up,” the report noted.
China is in the midst of a structural shift in its economy from manufacturing toward greater consumption and these changes are slowing down the economy. In India, initiatives by the government and rising income levels are boosting factory investments, leading to continued high economic growth.
“As People’s Republic of China policy makers pursue a smooth transition to more moderate growth, their Indian counterparts strive to maximize growth,” the report said.
The strength of India’s economy is also driving regional growth. South Asia is forecast to post the most rapid growth of all developing country regions in Asia. Economic growth in South Asia accelerated to 7.0 percent in 2015 and is expected to accelerate further to 7.3 percent in 2017. India is the clear economic bright spot in the region.
“Apart from weakness in export demand, other economies in the subregion face unique challenges to growth: a devastating earthquake and a political standoff in Nepal, a drop in high-end tourism in the Maldives, and much-needed fiscal reform to deal with a buildup of excessive debt in Sri Lanka,” the report noted.
In India, where services have been a major driver of the economy, manufacturing and industry are now picking up. After growing by 5.9 percent in 2014, industry accelerated further to 7.3 percent in 2015. Manufacturing growth rebounded to 9.5 percent, helped by lower input costs for factories.
Robust government spending on infrastructure – helped by lower fuel subsidies – and consumption among city dwellers remain the powerful forces in the economy and are expected to bolster growth in the future. In rural areas, the amount of rain that falls on farmers’ crops during the monsoon season is vital to driving rural spending and consumption.
While much of Asia struggles, the future for India’s economy looks bright with the government encouraging the manufacturing sector, strengthening the banking system, and increasing exports.
“Numerous measures enacted to attract foreign direct investment along with further measures to improve the business environment, will ensure that India remains a favored base for manufacturing and exporting,” the report added.