India to grow 7.3% this financial year, 7.6% in FY2019: ADB

In its Asian Development Outlook (ADO), 2018, ADB said, Indian economy grew 6.6 percent in the last fiscal as it battled the lingering effects of demonetisation in 2016, businesses adjusting to Goods and Services Tax (GST) in 2017, and a subdued agriculture.

The release of the development bank says that India's growth in the financial year 2017 was driven primarily by services, which grew by 8.3 per cent due to improved growth in finance and real estate. Image source: Pixabay

The Asian Development Bank (ADB) on Wednesday said, India's economic growth is set to rise to 7.3 per cent in the financial year (FY) 2018 and further to 7.6 percent in the next financial year, on back of GST and banking reforms. In its Asian Development Outlook (ADO), 2018, ADB said, Indian economy grew 6.6 percent in the last fiscal as it battled the lingering effects of demonetisation in 2016, businesses adjusting to Goods and Services Tax (GST) in 2017, and a subdued agriculture.

It says, in demonetisation had an impact on the informal sector in the first half of FY2017, while the teething issues related to the implementation of the GST hampered operations of small and medium-sized enterprises and exporters, also contributed to growth moderation.

ADB Chief Economist Yasuyuki Sawada said, despite the short-term costs, the benefits of reform such as the recently implemented GST will propel India's future growth.

Sawada said Robust foreign direct investment flows attracted by liberalised regulations and the government steps to improve the ease of doing business will further bolster growth. ADB India Country Director Kenichi Yokoyama said India would remain the fastest-growing country across Asia.

Reason for the decline in growth in FY2017

In addition, it says, the industrial activity slowed down mainly due to manufacturing growth’s weakening to 5.1% in FY2017, compared to 7.9% a year earlier.

It says the agricultural performance was also modest, as food grain production marginally exceeded the good harvest a year earlier. Although consumption growth dropped to its lowest level in 5 years in FY2017, there was a sequential pickup in investment during the year.

ADB's take on Inflation
In its release, ADB says that it is expected that inflation will inch up to 4.6 per cent in FY 2018 and 5 per cent in FY 2019. This growth will be driven by further firming of global commodity prices and strengthening of domestic demand.

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