In a major boost to Narendra Modi-led government, the Asian Development Bank has estimated that India’s economic growth will rebound to 7.3% in the current fiscal year and grow at 7.6% further in FY20 on the back of structural reforms such as GST and clean banking. In its Asian Development Outlook 2018, the Manila headquartered bank has credited the Modi-government’s GST saying that growth will pick up as the new tax regime improves productivity. Interestingly, in their India notes, global rating firms Moody’s, S&P and Fitch had also pointed out a common observation in reference to GST– that the increase in revenues from tax collections will spur growth in the country, having a positive impact on GDP growth.
Giving its observation on the new indirect tax regime, ADB said, “Also set to catalyse growth are benefits from the GST as it mitigates geographic fragmentation and adds revenue to the exchequer, as well as further progress on fiscal consolidation and reform to promote FDI.” Apart from the effects of GST, Asia Development Bank also sees a lot of benefit flowing to the economy on the back of the ongoing banking reform.
According to Asian Development Bank’s note, the government’s efforts to strengthen the banking system and continued corporate deleveraging are likely to bolster private investment. Growth is forecast to pick up to 7.3 per cent in FY2018 on improved rural consumption, a modest uptick in private investment, and less drag from net exports, ADB said. Further, the bank expects that urban consumption growth will remain ‘stable’, and impetus from public investment ‘modest.’
Taking stock of RBI’s monetary policy stance, ADB notes that the deferment of fiscal consolidation, inflation risks, and expected hikes in US interest rates in 2018 squeeze maneuvering room for policy rate cuts to ‘stimulate growth’. However, the bank also noted that as the central bank RBI has shown tolerance to rising inflation, there are lower chances of a rate hike, as a cognizant RBI looks to nurture growth. In its latest Monetary Policy review, the central bank has kept the key policy rates unchanged for the fourth consecutive-time.