ADB's India forecast: Sunny with a chance of 7.8% growth

Slower growth in the PRC is likely to have a noticeable effect on the rest of Asia: Shang-Jin Wei

The Asian Development Bank (ADB) on Thursday reaffirmed its growth forecast for India, pegging Gross Domestic Product (GDP) to grow at 7.8 per cent in FY16 and 8.2 per cent in FY17. ADB's growth forecasts are higher than that of the International Monetary Fund's (IMF), which projects India to grow at 7.5 per cent in each of these years. The World Bank had earlier projected India to grow at 7.5 per cent in 2015. However, it scaled down growth projections for Asia by two percentage points to 7 per cent in 2015. China would similarly face two percentage points less growth to 7 per cent in the current calendar year than estimated earlier.

While there continues to be some uncertainty on the monsoon front, ADB says that a healthy monsoon has seen summer crop sowing increase by 57.6 per cent over last year's. This is expected to boost agricultural growth.

On the revival of the investment cycle, ADB holds the position that the rise in the number of new investment projects announced, which has continued to increase for the fourth consecutive quarter during the quarter ending June 2015, indicates brighter investment sentiment. It adds that indirect tax collections in the first quarter of FY2015 do indicate a recovery in manufacturing.

Growth is expected to accelerate to 8.2 per cent in FY 2016-17 on the back of strong service sector growth and removal of the procedural bottlenecks that have hampered investment.

Risks to growth prospects, it argued, stem from delays in passing crucial legislation such as the GST and the land acquisition.

While maintaining India's growth forecast, ADB cut its forecast for Developing Asia to 6.1 per cent from 6.3 per cent, largely on account of a slower than expected economic activity in United States and China.

Growth projections for China have been revised downwards from 7.2 per cent previously to 7 per cent in 2015. Despite this downward revision, ADB's estimate is higher than that of IMF, which projects China to grow at 6.8 per cent in 2015 and 6.3 per cent in 2016.

"Slower growth in the PRC is likely to have a noticeable effect on the rest of Asia given its size and its close links with other countries in the region through regional and global value chains," said ADB chief economist Shang-Jin Wei. Slower Chinese growth could have a dampening impact on India's exports.