GST impact on economy: ADB says medium term growth in India set to get boost

The Asian Development Bank (ADB) has retained its earlier growth forecast for India at 7.4% for the current fiscal and 7.6% for 2018-19, and said the goods and services tax (GST) regime is expected to improve the ease of doing business and facilitate growth in the medium term.

In its supplement to the Asian Development Outlook 2017, ADB also said India’s economic growth slowed to 7.1% in 2016-17, mainly due to demonetisation, sluggish private sector investment and weak bank lending. However, in the first quarter of the current fiscal, manufacturing inched up, as indicated by the improvement in purchasing managers’ index from 51.2 in the fourth quarter of 2016-17 to 51.7. “Consumption is likely to continue to be the main driver of growth. Higher crop sowing, helped by a healthy monsoon, and an uptick in rural wage growth will bolster rural consumption, while urban consumption will get a boost from pay hikes for central and state government employees,” it said.

The goods and services tax is expected to boost growth in the medium term, though there may be some teething pains as firms adjust to the new system, ADB said.

“Front-loading central government capital expenditure should further propel the pickup in growth in the current fiscal,” it said. Inflation in India is expected to average 4% in 2017-18 before rising to 4.6% in 2018-19, it said.

Retail inflation hit a fresh low of 1.54% in June on a broad-based moderation.

ADB upgraded its growth outlook for developing Asia to 5.9% for 2017 from 5.7% projected in its April outlook. It also revised up the growth forecast for the region to 5.8% for 2018 from 5.7% announced earlier.