New Delhi: The Asian Development Bank (ADB) has lowered its 2017 growth forecast for India to 7% from its July estimate of 7.4%, reflecting “short-term disruptions" such as last year’s demonetization and this year’s implementation of the goods and services tax (GST) that the bank expects to “dissipate".

In a Tuesday update to its Asian Development Outlook 2017, the bank increased its growth forecast for Asia from 5.7% to 5.9% on the back of China’s better-than-expected performance and a revival in global trade and strong growth in the developed world.

It expects the good news to last into 2018, for which it increased the region’s growth forecast to 5.8% from 5.7%. The bank upped its forecast for China to 6.7% in 2017, from the previously estimated 6.5%. It also increased next year’s forecast for China to 6.4% from 6.2%.

In India’s case, ADB expects “medium-term benefits" from GST. It expects growth next year to pick up to 7.4%, lower than the previously estimated 7.6%.

On Monday, India announced the revival of the economic advisory council to advise the Prime Minister on the economy. India’s growth fell to a three-year low of 5.7% in the April-June quarter. Some of the decline was caused by the lingering effects of demonetization and the implementation of GST (which are expected to ease). Private investment, meanwhile, has shown no signs of recovery.

Public spending, however, has been on a strong footing as the government announced its annual budget for 2017-18 a month earlier this year on 1 February to enable “front-loading" of expenditure. Government officials expect this to benefit the economy while any decision on deviating temporarily from its fiscal consolidation path will only be taken at the time of budget-making for the next financial year. Economists suggested that 7% growth may be within reach this financial year. “We have also lowered our economic growth forecast to 7% recently from the earlier forecast of 7.4%. The aftershocks of demonetization and the temporary disruption caused by implementing goods and service tax should start easing now, but the impact of these unprecedented measures are difficult to gauge," said D.K. Joshi, chief economist at rating agency Crisil. Joshi added that one needs to constantly re-evaluate emerging economic data in the current circumstances.

Organisation for Economic Cooperation and Development (OECD) said in its interim economic outlook on 20 September that the Indian economy is projected to grow at a lower than expected rate of 6.7% this fiscal due to the “transitory effects" of demonetization and GST implementation, news agency PTI reported on 21 September. The growth rate projected in June was 7.3%.

The Paris-based think tank also revised downwards its estimate for India’s growth in 2018-19 to 7.2% from its estimate in June of 7.7%.

HDFC Bank chief economist Abheek Barua said one sector that needs supportive measures is small and medium enterprises (SMEs). “The environment for SMEs to do business got impacted because of the teething troubles of the GST system. Considering that SMEs are major employment generators and many are exporters, we need to address this on an urgent basis," Barua said.

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