India's growth and investor confidence will improve on the back of government's structural reform agenda and improved external demand, the Asian Development Outlook (ADO), an annual publication of the ADB, said. It forecast that India's growth will improve from 7.4 per cent in current fiscal to 7.8 per cent in 2015-16 and further to 8.2 per cent in 2016-17.
As regards China, the ADB projected the economic growth to decelerate from 7.4 per cent in current fiscal to 7.2 per cent next fiscal and 7 per cent in 2016-17.
"India is expected to grow faster than the Peoples Republic of China in the next few years.
The governments pro-investment attitude, improvements in the fiscal and current account deficits, and some forward movement on resolving structural bottlenecks have helped improve the business climate and make India attractive again to both domestic and foreign investors," ADB Chief Economist Shang-Jin Wei said.
He, however, cautioned that although the economic prospects look promising, "there are still many challenges".
ADB's estimates is, however, lower than the 8-8.5 per cent growth estimates of Indian government for the 2015-16 fiscal beginning April. It is better than 7.5 per cent projection by the International Monetary Fund (IMF). The ADB said that strong growth outlook is contingent on further acceleration in investment activity. "The prospects look promising".
It said the measures undertaken by the government including accelerating environment clearances for infrastructure projects, easing the process of land acquisition for infrastructure and industrial corridors, allowing auction of coal mines to the private sector, and easing the compliance burden of labour laws on small and medium-sized industries would help boost growth.
The ADB said that India's most pressing policy challenges is to promote cities as engines of economic growth and jobs.
"To fully reap the benefits of urbanisation, the government must make further efforts to coordinate urban and industry planning to attract industries into cities, and provide the necessary supporting infrastructure," it said.