India to grow at 7.4% in 2017-18, says Asian Development Bank

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New Delhi | April 07, 2017 5:25 AM

As the note ban impact dissipates, India will grow at 7.4% in the current fiscal and 7.6% in 2018-19, cementing its position as the world’s fastest-growing major economy, ahead of China, the Asian Development Bank (ADB) forecast on Thursday.

The country is expected to have clocked a growth rate of 7.1% in 2016-17, despite apprehensions that the note ban, announced in November last year, has dented consumption as well as investment.

As the note ban impact dissipates, India will grow at 7.4% in the current fiscal and 7.6% in 2018-19, cementing its position as the world’s fastest-growing major economy, ahead of China, the Asian Development Bank (ADB) forecast on Thursday.

In its Asian Development Outlook, ADB also said: “The impact of the demonetisation of high-value bank notes is dissipating as the replacement banknotes enter circulation. Stronger consumption and fiscal reforms are also expected to improve business confidence and investment prospects in the country.”

The country is expected to have clocked a growth rate of 7.1% in 2016-17, despite apprehensions that the note ban, announced in November last year, has dented consumption as well as investment.

ADB’s forecast India is better than that of the International Monetary Fund (IMF) for 2017-18. In its forecast in January, the IMF said the Indian economy will grow 7.2% in 2017-18 and 7.7% in the next fiscal. In January, the World Bank also predicted India’s growth to rebound to 7.6% in 2017-18 and 7.8% in 2018-19. However, for 2016-17, the IMF and the Bank have already trimmed their India growth forecasts to 6.6% and 7%, respectively, compared with the Central Statistics Organisation’s prediction of 7.1%.

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As for China, the ADB report said, the growth in the world’s second-largest economy is expected to drop to 6.5% in 2017 and 6.2% in 2018, slowing from 6.7% in 2016-17. It said that the efforts of the Chinese government to stick to financial and fiscal stability would continue to be a modest drag on growth going forward. However, the continued structural reform would help in maintain growth in the government’s target range there.

“An array of important economic reforms has propelled India’s economic success in recent years,” said Yasuyuki Sawada, ADB’s chief economist. “A continued commitment to reform — especially in the banking sector — will help India maintain its status as the world’s fastest growing major economy.”

India has initiated a number of reforms measures, most notably the Goods and Services Tax (GST) and liberalisation of the FDI regime, in a bid to boost growth. The GST regime is set to be introduced from July.

Moving forward, the ADO expects growth to accelerate through increased consumption, as more new bank notes are put in circulation, and as planned salary and pension hike for state employees are implemented. The public sector will remain the main driver of investment as banks continue to wind down balance sheets constrained by high levels of stressed assets, it said.

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