ADB forecasts Indian FY2016 GDP growth of 7.4%, unchanged from its March projection, while FY2017 growth is also seen unchanged at a faster clip of 7.8%.

Overall growth in the first quarter of FY2016 fell to 7.1% year-on-year as private consumption, investment, and construction moderated. Weak rains slowed agricultural output and credit growth remained subdued. At the same time, services grew by over 9% year-on-year, aided by a sharp rise in government spending, with government consumption posting its highest level of growth in almost 2 years.

Moving forward, the Update expects the economy to benefit from the flow through impacts of ongoing reforms, including the approval in August 2016 of legislation to allow the introduction of a long-awaited uniform goods and services tax. This landmark legislation is expected to boost GDP growth and revenue for the government.

The effects of a healthier monsoon season, after 2 years of weak rains, will spur growth and government approval of a pay hike for public servants last August will continue to fuel buoyant consumption, which will remain a key growth driver. Construction, meanwhile, will benefit from the government announcement of measures to ease rules for quicker settlement of housing disputes, and to clear the way for fresh liquidity injections into stalled projects.

An uptick in demand from advanced economies, including oil producers supported by higher commodity prices, will boost exports, which after 2 years of contraction are seen expanding 4% in FY2016 and 7% in FY2017.

A revival in public investment and some modest improvement in private investment will also underpin the economy in FY2017. Growth in foreign direct investment (FDI) inflows, though not as strong as in FY2015, will nevertheless remain at solid levels with the government liberalizing caps on FDI in some sectors and taking steps to improve the ease of doing business.

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