ABD lowers India’s GDP forecast to 6.7% for 2017-18

The Asian Development Bank (ADB) in its Asian Development Outlook Supplement has lowered India’s economic growth forecast for current fiscal i.e. FY 2017-18 by 0.3% to 6.7% from earlier 7%.

The reasons cited for this downward revision of growth forecast of largest economy South Asia are lingering effect of demonetisation, transitory challenges to Goods and Services Tax (GST) and weather-related risks to agriculture.

Key Highlights of ABD’s forecast

ADB has also revised downwards India’s gross domestic product (GDP) outlook for next fiscal beginning from March 2018 to 7.3% from 7.4% mainly due to rising global crude oil prices and soft growth in private sector investment. However, it expects growth to pick up in remaining two quarters of FY 2017-18 as Government is implementing measures to ease compliance with new GST as well as bank recapitalisation.

Inflation in India has remained subdued in first seven months of 2017-18, averaging 2.7%, with low food prices and demand still not out of woods because of demonetisation. However, inflation had picked up since July 2017 on price uptick for food, especially pulses and vegetables. Fuel prices also inched up in response to rising global crude oil prices. It has now projected inflation to average 3.7% in 2017-18, somewhat below the 4% earlier forecast.

Earlier Forecasts

Prior to ADB, World Bank had reduced India’s GDP growth forecast to 7% for 2017-18, from 7.2% estimated earlier, blaming disruptions caused by demonetisation and implementation of GST and it will grow at 7.4% by 2019-20. The Organisation for Economic Cooperation and Development (OECD) has also cut its growth projections for India to 6.7% for 2017-18.

Fitch Ratings in its September Global Economic Outlook (GEO) also had lowered its forecast for India’s growth for FY 2017-18 to 6.7% from the earlier projected 6.9%, citing rebound was weaker than expected. It also cut GDP growth forecast for 2018-19 to 7.3% from 7.4% predicted

Moody’s also had projected India’s real GDP growth to moderate to 6.7% in the current fiscal 2017-18, down from 7.1%. According to it, GST and demonetisation have undermined growth over near term, but real GDP growth will rise to 7.5% in 2018-19 as disruption fades. Standard & Poor’s had held that India’s growth is among fastest of all investment-grade sovereigns and projected real GDP expansion to average 7.6% over 2017-20.

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