ADB lowers India’s growth forecast to 7% for this year

NEW DELHI: The Asian Development Bank (ADB) has lowered its 2017 growth forecast for India to 7% from its July estimate of 7.4%, reflecting “short-term disruptions” such as last year’s demonetisation and this year’s implementation of the Goods and Services Tax (GST) that the bank expects to “dissipate”.

In a Tuesday update to its Asian Development Outlook 2017, the bank raised its growth forecast for Asia from 5.7% to 5.9% on the back of China’s better-than-expected performance and a revival in global trade and strong growth in the developed world. It expects the good news to last into 2018, for which it increased the region’s growth forecast to 5.8% from 5.7%.

The bank upped its forecast for China to 6.7% in 2017, from the previously estimated 6.5%. It also increased next year’s forecast for China to 6.4% from 6.2%.

In India’s case, ADB expects “medium-term benefits” from GST. It expects growth next year to pick up to 7.4%, lower than the previously estimated 7.6%.

On Monday, India announced the revival of the economic advisory council to advise the Prime Minister on the economy. India’s growth fell to a three-year low of 5.7% in the April-June quarter. Some of the decline was caused by the lingering effects of demonetisation and the implementation of GST (which are expected to ease). Private investment, meanwhile, has shown no signs of recovery.

Public spending, however, has been on a strong footing as the government announced its annual budget for 2017-18 a month earlier this year on 1 February to enable ‘front-loading’ of expenditure. Government officials expect this to benefit the economy while any decision on deviating temporarily from its fiscal consolidation path will only be taken at the time of budgetmaking for the next fiscal.

Economists suggested that 7% growth may be within reach this financial year. “We have also lowered our growth forecast to 7% recently from the earlier forecast of 7.4%. The aftershocks of demonetisation and the temporary disruption caused by implementing GST should start easing, but the impact of these measures are difficult to gauge,” said DK Joshi, chief economist, Crisil.

THE BANK RAISED ITS FORECAST FOR CHINA TO 6.7%, FROM THE EARLIER 6.5%. IT ALSO INCREASED NEXT YEAR’S FORECAST FOR CHINA TO 6.4% FROM 6.2%