ADB, S&P scale down growth projections for economy

Three days after the government had reduced its growth projections for the current fiscal year, two international agencies — ADB and S&P — have also scaled down their expectations on India’s economic performance.

The Asian Development Bank has revised its forecast downwards and projected India’s growth at 7.4 per cent in 2015, while S&P has maintained it at 7.4 per cent for the current fiscal year on concerns over the global slowdown, a weak monsoon, and stalled structural reforms.

The forecasts are largely in line with government data released last week as well as the projection made by the Reserve Bank of India. According to the Central Statistics Office, the economy grew at 7.2 per cent in the first half.

The Finance Ministry expects GDP growth at about 7.5 per cent this year, against the Budget target of 8 to 8.5 per cent. These projections, however, do not restrain Finance Minister Arun Jaitley from presenting a growth oriented Budget for 2016-17.

For 2016, the ADB has estimated growth of 7.8 per cent. It had earlier estimated economic growth at 7.8 per cent this year and 8.2 per cent next year.

Global ratings agency Standard & Poor’s, while giving its growth projections, has said that the government’s lack of a majority in the upper house of Parliament has impeded its ability to implement key reforms such as the goods and services tax. It, however, has said that economy will pick up to 8 per cent in 2016-17.

Stalled reforms

“In addition to slower than anticipated global growth, the revisions reflect expectations that the reforms and improved investor confidence needed to bolster the economy could be months away and could still be set back by potential global market turmoil,” said ADB Chief Economist Shang-Jin Wei in the supplement to the September 2015 Asian Development Outlook Update. 

The agency, while reducing India’s GDP forecast to sub-8 per cent in 2016, said a pick-up in investments is vital for further growth. “Debottlenecking stalled investment projects (is) likely to increase investment activity,” it said, adding that reforms for land acquisition, labour and taxes are important to improve the investment climate.

However, it said that there is more scope for monetary easing as retail prices would remain soft with inflation at 5 per cent this year and 5.5 per cent next fiscal year. “Continued soft consumer prices will give the central bank scope for further reduction in interest rates in the second half of fiscal 2015 (Bank takes January-December as fiscal year). The positive impact of monetary easing on the real economy would be strengthened with further headway on economic reforms,” the ADB said.

Further, it felt that for the year 2016, a recovery in oil prices and improved industry and investment demand should see both imports and exports pick up.

Meanwhile, S&P, in its ‘India Credit Spotlight’ said that India’s expected GDP growth would still place it among the fastest-growing large economies in the world and make it an attractive investment destination.

But, sluggish investments, mounting bad debts of banks and limited counter-cyclical policy tools due to efforts to contain inflation and the fiscal deficit would pose a challenge to growth, it said.