Terming the passage of the Constitutional Amendment Bill for the goods and services tax (GST) as a “milestone reform”, the Asian Development Bank on Tuesday said the Indian economy will remain on a strong growth path in the current and next fiscal.
In an update to its Asian Development Outlook 2016, the ADB retained India’s GDP growth forecast at 7.4 per cent for the current fiscal and forecast the economy would grow at 7.8 per cent in 2017-18.
“With increasing investment over the coming year, India will remain the fastest growing major economy in the world. Legislation to allow a national value-added tax is a milestone reform for India, while ongoing efforts to restructure bank balance sheets will help underpin faster growth moving forward,” said Juzhong Zhuang, Deputy Chief Economist, ADB.
GST will help boost GDP growth and revenue for the government, it said, adding that the favourable monsoon and the Pay Commission award would also lift private investment.
The good monsoon will also cool food prices and the ADB report has estimated inflation to average at about 5.4 per cent in the current fiscal.
It also noted some risks of slippage in the government’s fiscal consolidation plan due to subdued non-tax revenue and higher current expenditure.
“Measures to improve the targeting of subsidies and tax revenue growth should reduce the extent of slippage,” it said.
Last week, ICRA had pegged economic growth at 7.9 per cent in 2016-17, from 7.6 per cent last fiscal and had forecast retail inflation at touch 5.2 per cent by March 2017.
Slowing global trade However, slowing global trade could cast a shadow over prospects of strong domestic growth. On Tuesday, the World Trade Organisation said world trade will grow more slowly than expected in 2016, expanding by just 1.7 per cent, well below the April forecast of 2.8 per cent.
“This is accompanied by real GDP growth of 2.2 per cent at market exchange rates. This would be the slowest pace of trade and output growth since the financial crisis,” it said.
Meanwhile a study in the International Monetary Fund’s October 2016 World Economic Outlook noted that slow trade is largely a symptom of the sluggish economic recovery.
The sutdy added that trade volumes are likely to remain subdued unless growth and investment pick up.