The Asian Development Bank (ADB) on Wednesday slashed its forecast for India’s economic growth for 2016-17, citing a drop in exports and investments.

The Manila-based multilateral lender now expects India’s gross domestic product to expand 7.4 per cent in the year through March 2017, down from its earlier estimate of 7.8 per cent.

The projection for 2016-17 is also lower than the 7.6 per cent expansion the ADB expects the Indian economy to record in the year ending March 2016.

In its latest Asian Development Outlook 2016 report, the ADB said India’s GDP growth will likely bounce back in 2017-18 to 7.8 per cent. It said planned banking reforms will likely boost bank credit and private spending, including on infrastructure, and that private investment is also likely to pick up.

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.

The latest estimate is within the government’s projected range. The annual Economic Survey released by finance minister Arun Jaitley last month, forecast growth for 2016-17 to be in a range of 7-7.75 per cent. The government’s growth estimate for this fiscal year is 7.6 per cent.

“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 said that a pickup in manufacturing, private consumption and capital expenditure by the government helped offset a double-digit decline in exports in 2015-16. Also, imports fell mainly due to a sharply lower oil bill while inflation remained subdued thanks to lower global commodity prices, although there was a pickup in food prices in the second half.

It has also projected an increase in consumer inflation, mainly on account a hike in salaries of government employees and a mild pick up in global oil prices.

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 FY2017," it added.

The report said that bad loans at state-run banks and an overleveraged corporate sector leave limited scope for more private investment in infrastructure. It also said that the government is likely to maintain its fiscal consolidation efforts and keep the budget deficit at 3.5 per cent of GDP in 2016-17. 

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