India's economy will remain on a strong growth path this fiscal and clock a growth of 7.4 per cent aided by implementation of key structural reforms, robust consumer demand and higher agricultural output driven by a good monsoon, predicted an ADB study.
Despite moderation in the first quarter of 2016-17, forecast for growth is retained at 7.4 per cent in 2016 on the strength of improved private consumption after recently approved hike in wage and pension and expectations of a healthy monsoon lifting rural income, according to the latest Asian Development Outlook (ADO) 2016 Update.
As corporates successfully deleverage and bank reform boosts lending, recovery in private investment will help drive growth to 7.8 per cent in 2017.
"Legislation to create a national value-added tax should lift investor confidence as this accomplished a key step towards a much more integrated, productive economy," it said.
India recently adopted structural reform to attract more foreign direct investment and passed legislation to allow a national tax that will create a more integrated and productive economy, it added.
The government intends to implement the goods and services tax (GST) from April 1, 2017.
The report said South Asia is now developing into Asia's fastest growing sub-region, driven by solid growth in India. Forecasts in ADO 2016 are retained, with growth seen to slow slightly to 6.9 per cent in 2016 before re-accelerating to 7.3 per cent in 2017.
Thegrowth projections for India, the sub-region's largest economy, are similarly unchanged for both years, providing the main resistance to global headwinds.
Developing Asia is expected to maintain its growth pace going into 2017, buoyed by an improving external environment and resilience in the region's two largest economies, the People's Republic of China (PRC) and India.
The report noted that India is also likely to expand its trade in information technology services and witness emergence of other commercial services exports.
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"With increasing investment over the coming year, India will remain the fastest growing major economy in the world," ADB Deputy Chief Economist Juzhong Zhuang said.
An uptick in demand from advanced economies, including oil producers supported by higher commodity prices, will boost exports, which after two years of contraction are seen expanding 4 per cent in 2016-17 and 7 per cent in 2017-18, it said.
The report noted that a revival in public investment and some modest improvement in private investment will also underpin the economy in 2017-18.
Growth in foreign direct investment (FDI) inflows, though not as strong as in FY15, will nevertheless remain at solid levels with the government liberalising caps on FDI in some sectors and taking steps to improve the ease of doing business, it added.
Inflation, meanwhile, is expected to average 5.4 per cent in 2016-17 with food prices benefiting from a stronger monsoon.
Inflationary pressures, though, will move up in 2017-18, with the rate seen at 5.8 per cent, against a backdrop of higher global commodity prices and an expected rise in the prices of some services following the introduction of GST.
Talking about challenges, the report said the updated assessment notes some risks of slippage in the government's target to reduce the fiscal deficit to 3.5 per cent of GDP for 2016-17 due to subdued non-tax revenue and higher current expenditure.
"However, measures to improve the targeting of subsidies and tax revenue growth should reduce the extent of slippage. A healthy external balance and strong capital inflows have helped the Indian rupee remain relatively stable against the US dollar in 2016," it said.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
