The Asian Development Bank has trimmed India’s economic growth forecast for 2016-17 to 7.4% from 7.8% estimated earlier, projecting the economy to grow slower than in the current fiscal, while holding out hope for a pickup in 2017-18.The Manila-based multilateral development bank has attributed the downward revision to a slowdown in public investment, stressed corporate balance sheets and declining exports. It expects Indian economy to grow 7.6% in the current fiscal. “India’s economy will see a slight dip in growth in FY16 (From April 1, 2016 to March 31, 2017). The economy will again accelerate in FY17 as the benefits of banking sector reforms and an expected pickup in private investment begin to flow,“ ADB said on Wednesday in its flagship publication Asian Development Outlook’.` ADB’s projection for 2016-17 is lower than the government’s estimate of 7-7.75% spelt out in the Economic Survey.
The bank said that the finances available to ramp up the investment in 2016-17 will be considerably smaller given the faster pace of fiscal tightening and increased outgo on account of a higher public sector wage bill because of the Seventh Pay Commission recommendations. ADB said though any aggressive rate cuts by the Reserve Bank of India are unlikely, 2016-17 may see some monetary easing. As per the report, a pickup in manufacturing, private consumption and capital expenditure by the government helped offset a double digit decline in exports in 2015-16.
ADB projected an increase in consumer inflation, mainly on account of the impact of salary hike of government employees and a likely mild pickup in global oil prices. After two years of decline, ADB has projected consumer inflation to accelerate to an average of 5.4% in 2016-17 and 5.8% in 2017-18 as global oil prices firm up and domestic demand strengthens. It expects the still weak global economy to continue to weigh on exports.
Although it said that “India is one of the fastest growing large economies in the world and is likely to remain so in the near term“, the report highlighted that India faces “significant challenges“ to finance the infrastructure for sustainable growth such as public sector banks’ non-performing assets, overleveraged corporate sector and limited scope for more private investment.
Sources; Mar 31 2016: The Economic Times (Delhi)