ADB projects India's growth at 7.3% in 2018

Asian Development Bank (ADB) President Takehiko Nakao noted that India's growth in 2018 would pick up to 7.3 percent.

Addressing the opening session of the Board of Governors at the 51st ADB Annual Meeting here on Saturday, Nakao stated that despite operational challenges, Asia and the Pacific is well positioned to sustain its growth momentum, supported by robust private consumption and investment, and anchored by sound macroeconomic policies and structural reforms.

"China is expected to grow by 6.6 percent in 2018, even as its growth continues to gradually moderate. In India, growth should pick up to 7.3 percent. The Association of Southeast Asian Nations (ASEAN) region, with a large total population of 650 million, is continuing to grow at 5.2 percent. The recent rebound in oil prices has helped relieve fiscal pressures in oil-producing economies in Central Asia," he said.

Talking about the growth perspective for the region in total, Nakao opined that active trade and foreign direct investment are the foundation of Asia's economic success, and essential for continuing solid growth.

"Developing Asia grew by 6.1 percent in 2017, and we expect growth will be 6 percent in 2018. Excluding the four newly-industrialised economies of Hong Kong, China; Republic of Korea; Singapore; and Taipei, China, developing Asia's rate of growth is expected to be 6.5 percent in 2018. It is encouraging that global and regional trade has started to grow robustly again since the beginning of last year. Despite current disputes among some countries, we firmly believe that countries should make utmost efforts to maintain and foster an open multilateral trade system," he added.

The ADB, in its Asian Development Outlook (ADO) 2018 report released in April, had claimed that the Indian economy is set to expand by 7.3 percent in fiscal year (FY) 2018 and 7.6 percent in the next fiscal, aided by various growth-oriented policy measures.

It further noted that the dip in growth to 6.6 percent in FY2017 was driven in part by lingering effects of demonetisation, which impacted the informal sector in the first half of the fiscal. Moreover, teething issues related to the implementation of the Goods and Services Tax (GST) hampered operations of small and medium-sized enterprises (SMEs) and exporters, which also contributed to growth moderation.

However, ADB's Chief Economist Yasuyuki Sawada noted that Despite the short-term costs, the benefits of reform-such as the recently implemented GST-will propel India's future growth. Robust foreign direct investment flows attracted by liberalised regulations, and the government's steps to improve the ease of doing business will further bolster growth, he added.

In the upcoming months, the ADB noted that growth would pick up, supported by various measures aimed to bolster farmers' purchasing power, including higher procurement prices, agriculture market reforms, and investments in irrigation and logistics. The Bank also noted that investment revival is expected to continue, albeit at a modest rate, as firms and banks strive to improve their balance sheets, and capacity utilisation levels pick up.

Furthermore, the Bank projected inflation to inch up to 4.6 percent in FY2018 and five percent in FY2019 driven by further firming of global commodity prices and strengthening of domestic demand. The uptick in inflation along with deferment of fiscal consolidation and expected hikes in the US Federal Reserve's interest rate has reduced the room for policy rate cuts to stimulate growth, it said.

The Bank also stated that current account deficit is expected to be financed comfortably by capital flows, as India remains an attractive destination for foreign direct investment and portfolio flows.