Reversing two years of declining growth, Indian economy is set to expand 7.3 per cent in 2018-19 and 7.6 per cent in 2019-20, aided by various growth oriented new policy measures, says a new Asian Development Bank (ADB) report.

In its latest Asian Development Outlook (ADO) 2018 report, the Manila-based Bank said that dip in GDP growth to 6.6 per cent in 2017-18 was driven in part by lingering effects of demonetisation, which impacted the informal sector in the first half of 2017-18.

Teething issues related to implementation of Goods and Services Tax (GST), which hampered operations of small and medium sized enterprises and exporters, also contributed to growth moderation.

China's growth

Kenichi Yokohama, India Country Director, ADB said that India would become the fastest growing large economy for next two years given that China's growth forecast is lower than India's. The ADO forecasts China's growth will slow to 6.6 per cent in 2018 and 6.4 per cent in 2019.

Inflation

The ADO said that inflation in India is expected to inch up to 4.6 per cent in 2018-19 and 5 per cent in 2019-20 driven by further firms of commodity prices and strengthening of domestic demand. The uptick in inflation along with deferment of fiscal consolidation and expected hikes in the US Federal Reserve's interest rate has reduced the room for policy rate cuts to stimulate growth.

Abhijit Sen Gupta, Economist, India Resident Mission, ADB said that the odds for rate hikes by the RBI was low. "Rate hike is not very likely in the coming days", Gupta said. He felt that main growth driver would be mainly rural consumption coupled with healthy exports growth on the back of pick-up in growth in advanced economies.

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