The Asian Development Bank has lowered India’s growth forecast to 7.2% for 2019-20 from 7.6% estimated earlier due to moderation in global demand, although it would still be higher than the current level.
“Recent policy measures by the government to improve the investment climate and boost private consumption and investment will help India to lift economic growth in the next two fiscal years,” ADB said in its Asian Development Outlook 2019. “Growth is expected to rebound to 7.2% in 2019 and 7.3% in 2020 as policy rates are cut and farmers receive income support, bolstering domestic demand.”
This growth will reverse two years of a declining trend as reforms to improve the business and investment climate take effect, ADB said. India’s official estimates show the economy likely grew 7% in FY19.
The growth forecast for India has some downside risks such as moderation in global demand as financial conditions tighten, uncertainty arising out of global trade tensions and the weak economic outlook in industrial countries, the report said.
“On the domestic front, growth could suffer if tax revenue falls short or any disruption affects the ongoing resolution of the twin problems of bank and corporate balance sheets,” it added.
However, India will continue to be one of the fastest-growing major economies in 2019-20, it said.
“India will remain one of the fastest-growing major economies in the world this year given the strong household spending and corporate fundamentals,” ADB chief economist Yasuyuki Sawada said.
India has a golden opportunity to cement recent economic gains by becoming more integrated in global value chains and the young workforce, improving business climate and renewed focus on export expansion all support this, Sawada said.
Income support to farmers, higher procurement prices for food grains and relief to tax payers earning less than ₹5 lakh ($ 7,250) will boost household incomes.
It said consumer price inflation is expected to accelerate to 4.3% in 2019-20 and 4.6% in 2020-21 as food costs increase and domestic demand strengthens.
“Given that inflation is expected to average around 4% in the first half of 2019-20, the central bank (Reserve Bank of India) would have some room for lowering policy rates,” it said.
ADB said India’s imports are expected to rise, mainly due to stronger domestic demand, while a growth slowdown in key overseas destinations would dent export growth.
The current account deficit is expected to widen to 2.4% of GDP in the current financial year and 2.5% in the next. “The deficit is expected to be financed comfortably by capital flows, given that India has emerged as an attractive destination for foreign investment,” ADB said.