Asian Development Bank cuts India’s 2016 growth estimate

The Asian Development Bank (ADB) today cut its 2016 growth estimate for India to 7 per cent from the previous 7.4 per cent on account of demonetization, weak investment and agricultural slowdown.

The ADB had, in March last year, projected India’s 2015-16 growth at 7.8 per cent. However, it sliced its growth forecast for India to 7.4 per cent in September last year, citing a slowdown in industrial economies as well as a weak monsoon and stalled structural reforms in India.

Although India’s growth forecast for 2017 was kept at 7.8 per cent. “Economic growth in developing Asia remains broadly stable, but a slight slowdown in India has trimmed the region’s growth outlook for 2016,” said the new ADB report.

In a supplement to its Asian Development Outlook 2016 Update report, ADB has downgraded 2016 growth for Asia to 5.6 per cent, below its previous projection of 5.7 per cent. For 2017, growth remains unchanged at 5.7 per cent.

"India's tempered growth projection to 7 percent from the previously forecast 7.4 percent in 2016 is due to weak investments, a slowdown in the country's agriculture sector, and lack of available cash due to the government's decision to ban high-denomination banknotes," ADB said.

The Manila-based lender kept China's growth forecasts for this year and next at 6.6 percent and 6.4 percent, respectively.

"Asian economies continue their robust expansion in the face of global economic uncertainties," said ADB deputy chief economist Juzhong Zhuang.

"Structural reforms to boost productivity, improve investment climate, and support domestic demand can help maintain growth momentum," said Zhuang.

The growth estimate for Southeast Asia was kept at 4.5 percent for this year and 4.6 percent in 2017, supported by strong growth in Malaysia and the Philippines.

Economies in South Asia are projected to expand by 6.6 percent in 2016, down from the previous estimate of 6.9 percent. For next year, growth in that region will bounce back to 7.3 percent, the ADB said.

“India is one of the fastest-growing large economies in the world and will likely remain so in the near term. The potential growth of the country can be raised further if it can successfully implement necessary reforms including unifying the tax regime, improving labor market regulations, and opening further to foreign direct investment and trade,” ‎said Shang-Jin Wei, the ADB’s chief economist.

The ADB projected recovery in exports in 2017-18 as large economies show a mild growth rebound, and improved business environment with government policy actions in place. "However, India still faces significant challenges to finance the infrastructure it needs to deliver sustainable growth, with funding requirements estimated at around $200 billion a year through 2017," it added.