With the help of rise in productivity post Goods and Services Tax (GST) and investment revival on the back of banking reform, the Asian Development Bank (ADB) in its latest report has said growth in the Indian economy is expected to rebound to 7.3% in the fiscal year 2018 and will accelerate further to 7.6% in 2019. It added that the country’s Gross Domestic Product (GDP) grew 6.6% in the fiscal year 2017 due to the lingering effects of demonetization in 2016, businesses adjusting to a new tax regime in 2017, and subdued agriculture.
In its Asian Development Outlook, 2018, ADB has stated that overall growth will get a boost on improved rural consumption, a modest uptick in private investment, and less drag from net exports. It also said that urban consumption growth will remain stable, and impetus from public investment modest. It added that growth will pick up further in 2019 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 foreign direct investment (FDI).
The report pointed out that the prospects for policy stimulus remain limited and there is risk of tight interest rate regime. It also said that the deferment of fiscal consolidation, upside risks to inflation, and expected hikes in US interest rates in 2018 squeeze maneuvering room for policy rate cuts to stimulate growth. At the same time, the odds of a rate hike are low with the central bank indicating tolerance for slightly higher inflation and recognition of the need to nurture recovery. Consequently, it said that the status quo is likely to hold in FY2018, albeit with some risk of monetary tightening. Besides, it projected inflation to average 4.6% in 2018, rising to 5.0% in 2019 with further firming of global commodity prices and strengthening of domestic demand.
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