Indian economy to grow 6.5% in FY2019, 7.2% in FY2020: ADB

India’s fiscal year starts on 1 April and ends 31 March of the next calendar year.

In an update released on Wednesday of its flagship economic publication, Asian Development Outlook (ADO) 2019, ADB says that proactive policy interventions along with a recovery in domestic demand and investments will likely see the economy pick up in FY2020, growing by 7.2%. In July, ADB had forecast 7.0% growth for FY2019 and 7.2% in FY2020.

“India will remain as one of the fastest-growing economies in the world this year and next year as the government continues to implement policy reforms and interventions to strengthen economic fundamentals,” said ADB Chief Economist Mr. Yasuyuki Sawada.

Significant corporate tax cuts, announced by the government on 20 September, will uplift private investment, including foreign direct investments, and enhance India’s global competitiveness.

Bank recapitalization, support measures for nonbanking financial companies, and cuts in monetary policy rates should improve the health of the financial sector, while increasing the credit flow to industry and infrastructure projects.

Other measures, such as a direct income support for small farmers, a tax relief for low-income taxpayers, and reduced loan interest rates are expected to boost rural and urban consumption across the country.

Fast-tracking of goods and services tax refunds should provide an important boost to small and medium-sized firms that have been constrained by a shortage of working capital. Implementation of these measures will brighten prospects for India’s economy in FY2020.

Risks remain tilted to the downside given the weak global economy and, on the domestic front, the lag between growth-enhancing measures and the impact on demand. 

Indian exports are likely to be hit by subdued overseas demand and rising trade tensions, and the current account deficit will be 2.2% in FY2019 and 2.5% in FY2020. Foreign direct investment could get a boost in FY2019 and FY2020 as the trade tensions between the United States and the People’s Republic of China may push some businesses to move part of their operations to India. To capitalize on this, the government would do well to improve investment climate and further liberalize investment regulations, the report says.

Inflation will be benign for both FY2019 and FY2020 at 3.5% and 4.0%, respectively, both within the central bank target range, as food prices remain stable.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.