The Indian economy will grow 7.4 per cent this fiscal and 7.6 per cent in the next as the bankruptcy and GST laws will help create a more business-friendly environment, the Asian Development Bank (ADB) said today.
Ahead of its 50th annual meeting to be attended by finance ministers and central bank governors of member nations, the multilateral agency’s Chief Economist Yasuyuki Sawada said the reforms like the Goods and Services Tax (GST) and the new bankruptcy law will make it easier to do business in India.
“India’s growth rate is picking up, 7.4 per cent this year and next year 7.6 per cent,” he told a media briefing.
“Over 7 per cent growth rate is high if we compare it to other emerging market economies and also China. Behind this is cyclical factor, and improved terms of trade. The Indian government adopted new bankruptcy law that improved the business enabling environment. These are the the short-term and medium-term factors behind the growth acceleration in India,” Sawada said.
Note-ban effect
On the impact of demonetisation, he said the move obviously generated short-term decline in cash-based transactions and consumer sentiment.
“But according to out data analysis so far, this possible negative impact of demonetisation was only short lived and we still see a medium-term growth acceleration of the Indian economy,” said the ADB chief economist.
ADB had not studied the demonetisation exercise’s impact on black money, he said.
“But overall, as far as we monitored the growth rate trend and macro-economic indicators, demonetisation seems to have generated only a short-lived impact,” Sawada said.
GST together with the new bankruptcy law are big positives for India, he said.
Rupee rise
Asked about the impact of rupee appreciation on exports, Sawada said, “You are thinking (that) with the appreciation of rupee India will lose international competitiveness but it is the market environment that determines export growth. Medium shifting of industry and comparative advantage are also behind export pattern.”
Stating that rupee appreciation cannot be seen in isolation, he said the overall export performance of India so far seems to be quite positive.
“I’m not sure but probably you shouldn’t be too pessimistic about the exchange rate,” the ADB chief economist said.
The rupee strengthened to 64.2 against the US dollar and has been gaining strength as compared to other emerging economy currencies.
The rupee has appreciated by over 5 per cent against the US dollar since January.