ADB, S&P peg India's growth forecast at 7.4% for FY16

However, ADB warned of exports contracting due to weakness in external demand and the downside risk

India's growth has been projected at 7.4% for the current fiscal by Asian Development Bank as well as global rating agency Standard & Poor's.

ADB warned, however, of exports contracting due to weakness in external demand and the downside risk which the economy is facing due to sluggish private investment and weak rural demand.

In a supplement to the September 2015 Asian Development Outlook Update report, ADB has kept India GDP growth projection unchanged at 7.4% for 2015-16, and 7.8% for the next fiscal.

On the headwinds to the growth, it said: "India's economy faces further downside risks from sluggish private investment and rural demand weakened by slow wage growth and muted increase in support prices for agricultural products."

 

India is on track to reach the update forecast of 7.4% in the fiscal year ending March 31, 2016, as growth picked up to 7.4% in the second quarter from 7% in the first quarter, it said.

S&P's Ratings Services also forecast 7.4% GDP growth in 2015-16. It expects the growth to pick up further to over 8% in 2016-17.

S&P in its 'India Credit Spotlight' newsletter noted that significant reforms are required with Indian corporates and banks currently facing a weak operating environment.

Indian economy grew at 7.3% in last fiscal.

The RBI too has estimated GDP growth in current fiscal to be 7.4% in the latest review.

ADB said the leading indicators such as sales of vehicles, and air passenger traffic were gathering momentum.

Industrial production accelerated to 4.6% in the second quarter from 3.3% in the first quarter. Also, growth in public capital expenditure also continued to be robust at about 30% in the second quarter.

Average inflation in the first 7 months, at 4.6%, is broadly in line with the forecast of 5% in 2015-16 as inflationary pressures are expected to pick up in the remaining months as crude oil prices increase and economic activity accelerates, it added.

"Despite some softening in prospects for the major industrial economies, developing Asia is poised to meet growth forecasts," ADB said.

It kept the aggregate GDP expansion for Asia unchanged at 5.8% in 2015, and 6% in 2016, as subregional forecasts are unchanged except for slight downward revisions for Central Asia and the Pacific.