The global discussions around India’s economic growth continue to gather focus as we enter into the fifth and final fiscal year for the current Government. There was a mixed response from various international agencies, which we have captured below.

Asian Development Bank.

Asian Development Bank (ADB) recently stated that India’s economic growth will rise to 7.3 per cent this fiscal and further to 7.6 per cent in the next financial year, retaining the fastest-growing Asian economy tag, on the back of GST and banking reforms. In its Asian Development Outlook (ADO), 2018, Manila-based ADB said, “risks to trade are high” and retaliatory actions could dent growth in the Asian region going forward.

Indian economy grew 6.6 per cent in the last fiscal as it battled the lingering effects of demonetisation in 2016, businesses adjusting to goods and services tax (GST) in 2017, and a subdued agriculture. The country’s economic growth was 7.1 per cent in 2016-17. With 7.3 per cent growth projected for this fiscal, India would be reversing the two-year declining trend.

The ADB states that rebound growth in India will be the differentiating factor for making an exception to stagnant or lower growth in Asia’s subregions. ‘Only 14 of 45 individual economies are forecast to see growth accelerate in 2018, aggregate growth rates in most subregions are projected to be unchanged or lower this year. South Asia is the exception, as a rebound in India will lift growth above 7%, making it the fastest growing subregion in developing Asia. Across the region, domestic demand will remain as the key sustainer of growth. Central Asia and the Pacific will bounce back in 2019.

Despite the short-term costs, the benefits of reform such as the recently implemented GST will propel India’s future growth,” ADB Chief Economist Yasuyuki Sawada said. Robust foreign direct investment flows attracted by liberalised regulations and the government steps to improve the ease of doing business will further bolster growth, Sawada said.

“India would remain the fastest-growing country across Asia,” ADB India Country Director Kenichi Yokoyama said. However, there are issues regarding rising NPAs and risks from crude oil prices rising above USD 70 a barrel, he said.

International Monetary Fund.

The World Economic Outlook issued by the International Monetary Fund (IMF) provides that Growth in India is projected to increase from 6.7 percent in 2017 to 7.4 percent in 2018 and 7.8 percent in 2019 (unchanged from the October WEO), lifted by strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax. Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivize private investment.

The report goes on to point out the reasons for this growth and what should be the Government’s focus to sustain it.

India has made progress on structural reforms in the recent past, including through the implementation of the goods and services tax, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance. While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness. The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labor market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes.

The growth in services sector has seen a reverse trend in India, whereas globally ‘the manufacturing sector as a whole typically sees faster productivity gains than the service sector…..Moreover, average productivity growth in services in many developing economies, including China, India, and some in sub-Saharan Africa, has recently exceeded that of manufacturing.

Fitch Rating.

Fitch Ratings has affirmed India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-’ with a Stable Outlook. Some of the key takeaways from the report are:

  • India’s rating balances a strong medium-term growth outlook and favourable external balances with weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving business environment.
  • India’s relatively strong external buffers and the comparatively closed nature of its economy make the country less vulnerable to external shocks than many of its peers. Foreign reserves equal 8.3 months of current external payments (‘BBB’ peer median: 7.0 months), while gross and net external debt levels also compare well. However, net FDI inflows fell to USD23.7 billion in the first three quarters of FY18 from USD30.6 billion a year earlier, and, unlike in many of India’s peers, are now insufficient to cover a widening current-account deficit. Fitch expects the basic balance to widen to -1.3% of GDP in FY20 from -0.5% of GDP in FY18 (‘BBB’ peer median +1.2% of GDP).
  • The government has continued to gradually open the economy to foreign investors, including allowing 100% FDI in the single-brand retail through the automatic route since January 2018. Such measures may facilitate a recovery in FDI, particularly if combined with further investment climate reforms. India rose 30 places in the World Bank’s Ease of Doing Business ranking in 2017 and has ample potential to improve its position further, as it still ranks below both the ‘BBB’ and ‘BB’ medians.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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