ADB retains India's growth forecast for FY19 at 7.3% despite downside risks

The Asian Development Bank Wednesday retained India's economic growth forecast at 7.3 per cent for the current fiscal and 7.6 per cent for 2019-20, despite downside risks posed by stress in the non-banking sector, limited fiscal space as well as escalating trade tensions.

India is maintaining growth momentum on rebounding exports and higher industrial and agricultural output. The country's GDP growth moderated to 7.1 per cent in second quarter of 2018-19 from 8.2 per cent in the first quarter, averaging 7.6 per cent growth in the first half, the ADB said in its a supplement report to 'Asian Development Outlook (ADO) 2018 Update'.

"While a gradual slowdown across the quarters in 2018-19 was forecast in the update, the slowdown in Q2 was a bit steeper than anticipated. Nonetheless, growth forecasts of 7.3 per cent for FY19 and 7.6 per cent for FY20 are retained from the update despite some downside risks," ADB said in the supplement to the ADO.

The ADB said the Indian economy is exposed to risks emanating from a tighter credit as the nonbank finance sector experiences stress, limited fiscal space for public capital expenditure, and escalating trade tensions.

However, it said some of these risks could be offset by a recent decline in oil prices and by exports becoming more competitive as the Indian rupee weakens, down by 10 per cent since the beginning of 2018 despite a recent rebound.

In the ADO Update published earlier in September, ADB had said that India was on a robust growth path and had maintained the growth forecast for 2018-19 at 7.3 per cent.

In November, Fitch Ratings kept India's sovereign rating unchanged at 'BBB-', the lowest investment grade with a stable outlook, saying risks to macroeconomic outlook are significant.

The Manila-headquartered multi-lateral funding agency further said South Asia is largely on track to meet growth projections - 7 per cent for 2018 but revised marginally down to 7.1 per cent for 2019.

"Still the fastest-growing subregion in developing Asia, South Asia is on track to meet the Update growth forecast of 7 per cent for 2018, but the forecast for 2019 is revised down marginally from 7.2 per cent projected in September to 7.1 per cent," it said.

On the East Asia growth projections, ADB said has maintained it at 6 per cent for 2018 and 5.7 per cent for 2019, despite lower forecasts for the newly industrialised economies.

"China is still expected at 6.6 per cent in 2018, moderating to 6.3 per cent in 2019," the report said.

Backed by robust domestic demand, developing Asia continues to weather external headwinds.

"This supplement maintains growth projections at 6 per cent for 2018 and 5.8 per cent for 2019, as detailed in Asian Development Outlook 2018 Update in September. Excluding the newly industrialised economies, regional growth is forecast at 6.5 per cent in 2018 and 6.3 per cent in 2019, as envisaged in September," ADB said.

Economies in developing Asia and the Pacific are weathering external challenges thanks to robust domestic demand, while inflationary pressures are abating, it added.