The Asian Development Bank on Tuesday downgraded India’s growth projection from 7.4% to 7% for the 2017-18 financial year and from 7.6% to 7.4% for 2018-19.
“Growth in FY-2017 is expected to be lower than forecast as a new tax regime poses transitory challenges to firms and as investment by state governments and private investors remain muted,” the agency said in its latest report, Asian Development Outlook 2017 Update.
It further says that tax revenues in the first four months of the current financial year grew by 17.1%, higher than the 12.2% target. However, the Reserve Bank of India’s dividends to the government fell by half of that the previous financial year, backed by the “cost of printing new banknotes and absorbing excess liquidity resulting from the currency exchange process”.
India’s GDP growth slowed to 5.7% in the first quarter of 2017 from 7.9% in the corresponding period last year. The Asian Development Bank, however, forecast that economic growth will pick up in the remaining quarters of the year. “Private investment is expected to recover on lower borrowing costs stemming from the central bank’s August rate cuts,” it said.
Yasuyuki Sawada, Asian Development Bank’s chief economist, said India’s “ambitious reform agenda” will lead to a higher, long-run growth in the economy. “Despite the short-term hiccups as firms adapt to the national Goods and Services Tax, we believe that continued reform progress will help India remain one of the world’s most dynamic emerging economies,” Sawada said.
Though the manufacturing sector took a hit because of the implementation of the Goods and Services Tax on July 1, it is likely to bounce bank, the report said.