The Indian economy will grow 7.4% this fiscal and 7.6% in the next as the bankruptcy and GST laws will help create a better business friendly environment, the Asian Development Bank (ADB) said on Wednesday.
Ahead of its 50th annual meeting to be attended by finance minister and central bank governors of member nations, the multilateral agency’s Chief Economist Yasuyuki Sawada said the reforms like the Goods and Services Tax (GST) and the new bankruptcy law will make it easier to do business in India.
“India’s growth rate is picking up, 7.4% this year and next year 7.6%,” he told a media briefing.
The growth rate compares to 7.1% of the previous fiscal.
“Over 7% growth rate is high if we compare it to other emerging market economies and also China. Behind this is cyclical factor, improved terms of trade. The Indian government adopted new bankruptcy law that improved the business enabling environment. That is the a short-term and medium-term factor behind the gross acceleration in India,” Sawada said.
On the impact of demonetisation of old 500 and 1,000 rupee notes that took out 86% of the currency in circulation, he said the move obviously generated short-term decline in cash-based transactions and consumer sentiment.
“But according to out data analysis so far, this possible negative impact of demonetisation was only short-lived and we still see a medium-term growth acceleration of the Indian economy,” the ADB chief economist said.
ADB, he said, had not studied if the demonetisation had any consequences on black money.
“But overall, as far as we monitored growth rate trend and macro-economic indicator, the demonetisation seems to have generated only a short-lived impact,” Sawada said.
The GST, the biggest indirect tax reform since independence, together with the new bankruptcy law are big positives for India, he said.
The bankruptcy law and the GST will help in creating a better business enabling environment, which seems to be a factor behind this gross acceleration of India, he added.
Asked about the impact of rupee appreciation on exports, Sawada said, “You are thinking (that) the appreciation of rupee India will lose international competitiveness but actually export prices is market environment is another factor behind determinants of export. Medium shifting of industry and comparative advantage that’s also behind export pattern.”
Stating that rupee appreciation cannot be spoken in isolation, he said the overall export performance of India so far seems to be quite positive.
“I’m not sure but probably you shouldn’t be too much pessimistic about exchange rate,” the ADB chief economist said.
The rupee strengthened to 64.2 against the US dollar and has been gaining strength as compared to other emerging economy currencies.
The rupee has appreciated by over 5% against the US dollar since January.