India is expected to grow at a healthy 7.3 per cent in fiscal year (FY) 2018 helped by improved domestic demand, steady revival in industrial growth and reduced drag from net exports, according to a recently released Asian Development Bank (ADB) report.
In an update to its flagship annual economic publication, Asian Development Outlook (ADO) 2018, ADB maintains its growth outlook for India in line with its April forecasts of 7.3 per cent for FY2018 and 7.6 per cent in FY2019.
“We are now starting to see the benefits of reforms that the government of India has implemented over the past year as the economy recovers from a brief adjustment to these policies including the Goods and Services Tax (GST),” the report said.
The bank expects growth to maintain its strength and pick up next year as the economy continues to adjust to the reforms and investor sentiment improves. India’s economy grew by a strong 8.2 per cent in the first quarter of FY2018, according to the report. The report says private consumption grew by 8.6 per cent in the first quarter of FY2018, with rural demand recovering as the effects of demonetization waned and rural incomes increased.
The report says that domestic demand will continue to drive growth in FY2018 as rural consumption benefits from favorable weather, higher procurement prices for crops and measures taken to bolster farmers’ income.
“Private investment is also expected to boost India’s growth with new private sector projects spurring economic activity and creating jobs. Net exports, however, are expected to drag on growth, with imports likely to expand more than exports,” the report said.
Meanwhile, ADB predicts inflation to hit 5.0 per cent in FY2018, revised slightly upwards from former estimate in April of 4.6 per cent as rising global oil prices and a weaker Indian rupee push retail prices for petroleum products higher.
ADB also expects 5.0 per cent inflation in FY2019.
The report says that India’s macroeconomic fundamentals remain strong despite sharp rupee depreciation in the past few months, which is largely due to changes in global capital flows.