India to grow at 7.8% in FY16, to outpace China: ADB

New Delhi: The Asian Development Bank (ADB) on Tuesday projected India’s economy to grow by 7.8 per cent in 2015-16. This is lower than the official estimate of 8.1-8.5 per cent, but higher than China’s estimated growth of 7.2 per cent in 2015.

At this rate, India’s economy would contribute more to the world economic expansion than the US, although less than what China would chip in, ADB said in its World Development Outlook 2015, released on Tuesday. China is projected to contribute 1.15 per cent to the world economic growth, followed by India at 0.55 per cent. The US’ contribution is pegged at 0.52 per cent.

According to ADB, India’s economic growth in 2016-17 will be 8.2 per cent — something which the Economic Survey for 2014-15 had said India would achieve in 2015-16. The higher growth in 2016-17 is expected to come on the back of easing monetary stance by the Reserve Bank of India (RBI) and a pick-up in capital expenditure.

ADB is in touch with the Central Statistics Office (CSO) to understand the new gross domestic product (GDP) series and wanted it to come out with back-dated data on the new series.

According to ADB, consumer price index (CPI)-based inflation will fall to an average of five per cent in 2015-16 against less than seven per cent expected in 2014-15. However, it will rise to 5.5 per cent in 2016-17.

As such, there would be room for further easing of the policy rates by RBI, but the monetary policy agreement with the finance ministry would prevent the central bank from aggressive cutting the rate, Abhijit Sen Gupta, senior economics officer, ADB, India, told reporters here on Tuesday.

While Gupta attributed the 7.8 per cent economic growth projected for 2015-16 to ‘reform-oriented’ Budget and some progress in resolving structural bottlenecks, he also said any disruption in normal monsoon and slack in easing bottlenecks could prove to be a risk to the growth projection. He found the disinvestment target pegged at Rs 69,500 crore (inclusive of strategic sale) for 2015-16 “quite ambitious” in the light of performance in 2014-15.

Although the Centre is slated to meet its fiscal deficit target of 4.1 per cent of the GDP in 2014-15, Gupta said there were concerns over the quality of fiscal consolidation. “Tax revenues crawled,” he said. To buttress his point, he said service tax was targeted to grow 30 per cent in 2014-15, but the actual growth was 10 per cent. This led to expenditure compression and contraction in share of capital expenditure as a percentage of the GDP.

ADB also raised concerns over the projected slow pace of bringing down revenue deficit in 2015-16. “At the same time, the limited decline in the revenue deficit from 2.9 per cent in 2014-15 to 2.8 per cent in 2015-16 continues to be a matter of concern,” it said in a release.

Along with fiscal consolidation, the quality of banks' assets continues to be a matter of concern. The ratio of non-performing assets (NPAs) to total advances deteriorated from 3.4 per cent in March 2013 to 4.5 per cent in September 2014.

“A major part of the NPAs are with the government-owned banks, whose NPA ratio rose to 5.3 per cent in September, 2014,” ADB noted.

Much of the rise reflects a corporate sector stressed by high leverage and adverse business conditions, it said.

Earlier, the International Monetary Fund had forecast India's economy to grow by 7.5 per cent in 2015-16, while Fitch Ratings estimated an eight per cent growth.

The Organisation for Economic Cooperation and Development has pegged India's growth in 2015 (calendar year) at 7.7 per cent.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.