India will reverse 2 years of declining growth as the economy is set to expand by 7.3% in fiscal year (FY) 2018 and 7.6% in FY2019, aided by various growth-oriented policy measures, says a new Asian Development Bank (ADB) report.

In its latest Asian Development Outlook (ADO) 2018 report, ADB notes that the dip in growth to 6.6% in FY2017 was driven in part by lingering effects of demonetization, which impacted the informal sector in the first half of FY2017. Teething issues related to implementation of the Goods and Services Tax (GST), which hampered operations of small and medium-sized enterprises and exporters, also contributed to growth moderation.

"Despite the short-term costs, the benefits of reform—such as the recently implemented GST—will propel India's future growth," said Yasuyuki Sawada, ADB's Chief Economist. "Robust foreign direct investment flows attracted by liberalized regulations, and the government's steps to improve the ease of doing business will further bolster growth."

India's growth in FY2017 was driven primarily by services, which grew by 8.3% due to improved growth in finance and real estate, and in trade, transportation, and communication services. Industrial activity slowed down largely due to manufacturing growth's weakening to 5.1% in FY2017, compared to 7.9% a year earlier. Agricultural performance was also modest, as food grain production marginally exceeded the good harvest a year earlier. Although consumption growth dropped to its lowest level in 5 years in FY2017, there was a sequential pickup in investment during the year.

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