Global headwinds will pull down India's growth rate to 7.4 per cent in the next fiscal from 7.6 per cent this year but more reforms will help the country remain one of the fastest growing economies in the world, the Asian Development Bank said on 30 March.
The Asian Development Bank's (ADB) growth forecast of 7.4 per cent for 2016-17 is substantially lower than its earlier projection of 7.8 per cent.
ADB's flagship publication Asian Development Outlook (ADO) also projected a rise in consumer inflation, mainly on account of the impact of salary hike of government employees and a likely mild pick up in global oil prices. The ADB said:
"India's economy will see a slight dip in growth in FY (fiscal year) 2016 (From April 1, 2016, to March 31, 2017). The economy will again accelerate in FY 2017 as the benefits of banking sector reforms and an expected pickup in private investment begin to flow".
ADB projects that India's gross domestic product (GDP) will grow 7.4 per cent in FY 2016, slightly below the FY 2015 estimate of 7.6 per cent. In FY 2017, the growth is forecast to reach 7.8 per cent, it said.
According to estimates by India's Finance Ministry, the growth is likely to be between 7-7.75 per cent next fiscal year. ADB's Chief Economist Shang-Jin Wei said:
"India is one of the fastest growing large economies in the world and will likely remain so in the near term. The potential growth of the country can be raised further if it can successfully implement necessary reforms including unifying the tax regime, improving labour market regulations as opening further to foreign direct investment and trade".
In the next fiscal, ADB said that the weak global economy will continue to weigh on exports, offsetting a further pickup in domestic consumption, due in part to an impending salary hike for government employees.
It said public investment would remain strong next fiscal and strong PSU banks will help bring in an uptick in bank credit and boost private spending in 2017-18 fiscal.
- With agency inputs