New Delhi: Revising India's GDP upwards by 0.3 percent to 6.3 percent in 2015, Asian Development Bank (ADB) has said the economy shows a new promise of turnaround after the election brought a stable government in May.
"India shows new promise of a turnaround. After winning a decisive parliamentary election victory, the new (Modi-led) government is better positioned than the old to pursue the reform necessary to unlock the economy's growth potential.
"This update maintains the 5.5 per cent growth forecast for 2014 but upgrades....to 6.3 per cent, the forecast for 2015, when reform can begin to bear fruit," ADB said in its Outlook 2014 Update released today.
The reform to stimulate investment, the timely award of environmental clearances, and measures to control inflation are expected to augment firming export demand from the major industrial economies, to boost economic growth, it said.
The new single-party government in India with the strongest mandate in three decades has outlined wide-ranging reforms, which will gradually overcome the difficult structural problems that have beset the economy and caused two years of slow growth and stagnant investment, it said.
"Public expectation of strong economic policy from the government is seen in record highs on the stock market and robust capital inflows.
"As demand from consumers and businesses continued to grow...India's buoyant portfolio flows mean that financing the deficit should not be a problem, as capital flows are more resilient under global volatility this year than they were last year," the Update by ADB Chief Economist Shang-Jin Wei said.
Improving prospects in India will buoy the 2015 regional growth outlook somewhat, even as the growth path of China moderates, it added.
"Growth in Asia as a whole in 2014 is now expected to be higher at 5.4 per cent on unexpectedly strong outcomes in Bangladesh, Nepal, Pakistan, as well as India."
It said a greater momentum is expected in 2015 with South Asian growth now forecast at 6.1 per cent, revised up from 5.8 per cent.
South Asia is performing better than expected. The sub regional growth forecast for 2014 is edged up slightly to 5.4 per cent in 2014.
The improvement reflects strengthening in Bangladesh on export growth and in Pakistan on higher remittances, ADB said.
"India accounts for the bulk of the higher forecast, but with contributions from positive revisions for Bangladesh and Pakistan," ADB said.
It said that India's trade reform have lowered input prices and have allowed firms to significantly expand the range of outputs produced.
However, the report said that India needs to ensure that the current account deficit is financed by a mix of flows that is stable.
"Attracting more foreign direct investment will require tackling structural impediments to ensure a good investment climate," the report said.
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