The Asian Development Bank (ADB) on Wednesday noted that the Indian economy is set to expand by 7.3 per cent in fiscal year (FY) 2018 and 7.6 per cent in the next fiscal, aided by various growth-oriented policy measures.
The Bank, in its Asian Development Outlook (ADO) 2018 report, noted that the dip in growth to 6.6 per cent in FY2017 was driven in part by lingering effects of demonetisation, which impacted the informal sector in the first half of the fiscal. “Despite the short-term costs, the benefits of reform-such as the recently implemented GST-will propel India’s future growth. Robust foreign direct investment flows attracted by liberalised regulations, and the government’s steps to improve the ease of doing business will further bolster growth,” said Yasuyuki Sawada, ADB’s Chief Economist.
India’s growth in FY2017 was driven primarily by services, which grew by 8.3 per cent due to improved growth in finance and real estate, and in trade, transportation, and communication services. Industrial activity slowed down largely due to manufacturing growth’s weakening to 5.1 per cent in FY2017, compared to 7.9 per cent a year earlier.
In the upcoming months, the ADO noted that growth would pick up, supported by various measures aimed to bolster farmers’ purchasing power, including higher procurement prices, agriculture market reforms, and investments in irrigation and logistics. The Bank also noted that investment revival is expected to continue, albeit at a modest rate, as firms and banks strive to improve their balance sheets, and capacity utilisation levels pick up.
The report further highlighted that a pickup in growth in advanced economies will help exports to grow at a healthy rate. At the same time, imports are also expected to increase as a result of higher commodity prices and the uptick in domestic demand. With the rise in imports offsetting the increase in exports, the current account deficit is expected to widen to 2.2 per cent of GDP in FY2018 and 2.4 per cent of GDP in FY2019.
On a related note, the World Bank earlier in March had projected India’s Gross Domestic Product (GDP) growth at 7.3 per cent for the next financial year, and an accelerated growth to 7.5 per cent in 2019-20. Concerns on weak marketing and refining margins, rising crude prices, and lower budgetary allocation for petroleum subsidy had already hit OMCs in the recent past.
As regards March 2018 numbers, analysts expect downstream companies (OMCs) to benefit from inventory gains.