The country’s latest Economic Survey pares back earlier estimates of growth exceeding eight percent this year.
India on Friday offered a cautious forecast for economic growth to exceed 7 percent in the next financial year, as the government prepares to present its budget with clamor for promised reforms growing.
The Economic Survey, a yearly report released by the finance ministry ahead of the national budget on Monday, said gross domestic product (GDP) would expand between seven percent and 7.75 percent in 2016-17. The relatively upbeat prediction comes despite a weak global economy, with a slowdown in China that has worried investors, other major emerging markets in recession and sinking global stocks.
India’s GDP likely grew 7.6 percent over the 2015-16 financial year, the government said, making it the world’s fastest-growing major economy. However, Friday’s forecast represents a paring back of expectations from last year’s survey, which predicted growth would top eight percent this year.
“We’ve learnt from the experience of last year. The forecast for last year went wrong, maybe it was over-optimistic,” said Arvind Subramanian, the government’s chief economic adviser.
Last year’s survey did not anticipate how much weak global demand would hurt India’s exports, nor the impact of a second bad monsoon on its vast agricultural sector, he said. “This year’s assessment is really based on looking out at the external environment which seems to be very grim,” Subramanian told reporters.
Prime Minister Narendra Modi has made it a priority to boost India’s economic growth, vital for lifting millions out of poverty, since sweeping to power in a general election in May 2014. But investors have raised concerns about the pace of promised reforms needed to create jobs for India’s tens of millions of young people.
Economists said the wide range of the growth forecast for 2016-17 indicated the government might be hedging its bets. “What jumped out at me is that the government’s estimate has become more cautious,” said Hanna Luchnikava, senior economist, Asia Pacific at IHS Economics in Munich. “We do not expect any acceleration [in growth] next year, in fact the risks are to the downside,” she said.
While its growth has outpaced that of powerhouse China in recent quarters, Asia’s third-largest economy still faces challenges. After cooling from previously high levels, India’s once exorbitant inflation has ticked up again over the past few months, with prices rising 5.7 percent in January. India’s main stocks index has lost a fifth of its value over the past year, private investment is weak and the rupee is trading at near-record lows against the dollar.
The Economic Survey forecast consumer price inflation would ease to 4.5 to 5 percent in 2016-17. It also said India’s services sector remains one of the main engines of growth, expanding more than nine percent in the current fiscal year.
Services make up more than half of India’s economy although the government is pushing to increase manufacturing through its Make in India campaign. Investors will be looking to Monday’s budget for concrete reforms from the business-friendly government. There are hopes it will move to overhaul a complex corporate tax regime seen as off-putting to investors.
The Economic Survey also said the government probably succeeded in reducing its fiscal deficit to 3.9 percent of GDP in 2015-16 as economists expect.
It remains to be seen whether Finance Minister Arun Jaitley will look to relax the stringent fiscal deficit reduction target for next year when he presents the budget.
India has in recent years successfully managed to narrow its high fiscal deficit—the amount by which a government’s spending exceeds its income. But it still has high government debt compared with its developing country peers, with borrowings at 64 percent of GDP, according to ratings agency Moody’s.
The country is also dogged by concerns over the reliability of its economic growth data, a year after the government introduced a revised formula for calculating GDP which some analysts have criticized.
The government says the new method is closer to international standards.