The Asian Development Bank (ADB) has revised its outlook for India’s economy with growth now expected at 6.5 per cent in fiscal year (FY) 2019, following weaker expansion in the first quarter of the year with slower growth in consumption and investment affecting the manufacturing and service sectors.
In an update released on Wednesday of its flagship economic publication, Asian Development Outlook (ADO) 2019, ADB said that proactive policy interventions along with a recovery in domestic demand and investments will likely see the economy pick up in FY20, growing by 7.2 per cent.
In July, ADB had forecast 7 per cent growth for FY19 and 7.2 per cent in FY20. India’s fiscal year starts on April 1 and ends March 31 of the next calendar year.
“India will remain as one of the fastest-growing economies in the world this year and next year as the government continues to implement policy reforms and interventions to strengthen economic fundamentals,” said ADB Chief Economist Yasuyuki Sawada.
Significant corporate tax cuts announced by the government on September 20 will uplift private investment including foreign direct investments and enhance India’s global competitiveness. Bank recapitalisation, support measures for non-banking financial companies and cuts in monetary policy rates should improve the health of the financial sector while increasing the credit flow to industry and infrastructure projects.
Other measures like direct income support for small farmers, tax relief for low-income taxpayers and reduced loan interest rates are expected to boost rural and urban consumption across the country. Fast-tracking of goods and services tax refunds should provide an important boost to small and medium-sized firms that have been constrained by a shortage of working capital.
Implementation of these measures will brighten prospects for India’s economy in FY20. Risks remain tilted to the downside given the weak global economy and, on the domestic front, the lag between growth-enhancing measures and the impact on demand.
Indian exports are likely to be hit by subdued overseas demand and rising trade tensions and the current account deficit will be 2.2 per cent in FY19 and 2.5 per cent in FY20. The foreign direct investment could get a boost in FY19 and FY20 as trade tensions between the United States and China may push some businesses to move part of their operations to India.
To capitalise on this, the government would do well to improve the investment climate and further liberalise investment regulations, the report said.
Inflation will be benign for both FY19 and FY20 at 3.5 per cent and 4 per cent respectively, both within the central bank target range, as food prices remain stable.