'India's economy faces further downside risks from sluggish private investment and rural demand weakened by slow wage growth.'
The Asian Development Bank (ADB) on Thursday kept its economic growth forecast for India unchanged at 7.4 per cent for the current financial year and 7.8 per cent for the next fiscal.
ADB, however, warned 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.
"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," ADB said in its 'Outlook 2015 Supplement: Growth Holds Its Own in Developing Asia'.
India is on track to reach the update forecast of 7.4 per cent in the fiscal year ending March 31, 2016, as growth picked up to 7.4 per cent in the second quarter (July-September) from 7.0 per cent in the first quarter, ADB said.
"Leading indicators such as sales of commercial vehicles, car sales, and air passenger traffic were also gathering momentum. However, continued weakness in external demand will likely cause exports to contract this year," ADB said.
Average inflation in the first 7 months, at 4.6 per cent, is broadly in line with the forecast of 5.0 per cent in 2015-16 as inflationary pressure are expected to pick up in the remaining months as crude oil prices increase and economic activity accelerates, it added.
"Growth in India is expected to pick up further in the second half of the fiscal 2015-16 to reach 7.4 per cent, and in the next fiscal year, 7.8 per cent, as envisaged in the Update (published in September)," ADB said.
Industrial production accelerated to 4.6 per cent in the second quarter from 3.3 per cent in the first quarter. Also, growth in public capital expenditure also continued to be robust at about 30 per cent in the second quarter.
"Despite some softening in prospects for the major industrial economies, developing Asia is poised to meet growth forecasts," ADB said.
It kept the aggregate gross domestic product expansion for Asia unchanged at 5.8 per cent in 2015, and 6.0 per cent in 2016, as sub-regional forecasts are unchanged except for slight downward revisions for Central Asia and the Pacific.
Growth forecasts for the whole of South Asia were maintained at 6.9 per cent in 2015, and 7.3 per cent in 2016.
"Continued strong economic expansion in India balances a slowdown in Bhutan and the Maldives in 2015, and in Nepal in 2016," it said.
