New Delhi: India’s economic growth will pick up in 2018-19 to 7.3% on the back of improved rural consumption and a modest rise in private investment while the debilitating effects of demonetisation and goods and services tax (GST) implementation dissipate, the Asian Development Bank (ADB) said on Wednesday.

However, the FY19 forecast is a tad lower than the 7.4% economic growth that it estimated for India in September last year.

The Central Statistics Office has estimated the economy to have grown at 6.6% in 2017-18 —a two-year low.

“Farmers should enjoy more purchasing power with an announced budget policy to spur rural incomes with higher food procurement prices, agriculture market reform, crop insurance, and investment in irrigation and logistics. Stronger rural wages augur well for rural consumption, but urban consumption will be less dynamic with only moderate growth in urban wages and employment," ADB said in its annual Asian Development Outlook.

However, ADB said escalating trade tensions, rising US interest rates and accumulating domestic private debt are key risks to growth recovery in developing Asia, without specifically naming India.

India’s growth is expected to pick up further to 7.6% in 2019-20 as “efforts to strengthen the banking system and continued corporate deleveraging are likely to bolster private investment."

“Also set to catalyse growth are benefits from the GST as it mitigates geographic fragmentation and adds revenue to the exchequer, as well as further progress on fiscal consolidation and reform to promote FDI," ADB said.

The World Bank last month projected India’s economic growth to accelerate to 7.3% in 2018-19 and 7.5% in 2019-20.

With China’s growth projected to slow down to 6.6% and 6.4% in 2018 and 2019 respectively as domestic economic policy leans further toward financial stability and a more sustainable growth trajectory, ADB said India will remain the world’s fastest growing major economy.

ADB said with global oil prices forecast to increase by 19.7% in 2018 to $65 per barrel, decontrolled prices for fuels are expected to go up in India. “This will spill over into transportation and add some 30 basis points to inflation," it warned. However, it said the odds of a policy rate hike by the Reserve Bank of India are low with the central bank indicating tolerance for slightly higher inflation and recognition of the need to nurture recovery. “Consequently, the status quo is likely to hold in 2018-19, albeit with some risk of monetary tightening," it added.

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