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ADB cuts India's growth forecast to 7.8% for FY'16

By Religare

Given the economic slowdown in industrial countries, a weak monsoon, and stalled policy reforms, India's growth for the current fiscal year will fall short of earlier estimates, but still remain robust, says a new Asian Development Bank (ADB) report.

ADB, in an update of its flagship annual economic publication, Asian Development Outlook 2015, has revised India's gross domestic (GDP) growth for the fiscal year ending March 2016 (FY2015) to 7.4 per cent, below its March estimate of 7.8 per cent. For FY2016 growth is now seen at 7.8 per cent below the earlier forecast of 8.2 per cent.


"In addition to slower than anticipated global growth, the revisions reflect expectations that reforms and improved investor confidence needed to bolster the economy could be months away and could still be set back by potential global market turmoil," said ADB Chief Economist Shang-Jin Wei. "On the upside, inflation is trending down, crude oil import prices have fallen sharply, and tax revenue and net foreign direct investment inflows are up, which augurs well for a bounce back in the economy."

The slowdown in GDP growth in the first quarter was on the back of a slide in growth of consumption, manufacturing and services, with exports contracting significantly due to lower oil prices and lackluster demand.

Moving forward, a pick-up in the pace of investment is vital for further growth. While investment conditions have improved, significant challenges still remain. Debottlenecking stalled investment projects is likely to increase investment activity. In addition, moving forward on domestic reforms involving taxes, land acquisition, and labor laws are necessary to improve the investment climate, the report said.

Continued soft consumer prices will give the central bank scope for further reduction in interest rates in the second half of FY2015. The positive impact of monetary easing on the real economy would be strengthened with further headway on economic reforms. The report projects inflation to average 5 per cent in FY2015, rising to 5.5 per cent in FY2016, on improved growth and an uptick in commodity prices.

In FY2016, a recovery in oil prices and improved industry and investment demand should see both imports and exports pick up, with the current account deficit seen increasing slightly to 1.5 per cent of GDP.

Story first published: Tuesday, September 22, 2015, 23:00 [IST]
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