Improving relations will not only help India, but also China, says Albert F Park, chief economist at Asian Development Bank. In an interview with linePark emphasized the very robust domestic demand from India, strong public investments and now more private investments.
ADB has maintained the GDP growth rate at 6.5 percent of FY26, but the percentage has been reduced by 20 basic points for FY27 to 6.5 percent. How do you read the current situation of the Indian economy?
The high rates create some challenges. So compared to our April prediction, we have reduced the growth ear spelling for both this year and the next one. But you are right, compared to our most recent prediction of July, it is kept constant for FY26. It is because there will be a number of negative effects, but there is also some positive news with regard to GST and things that will be stimulative. That is the most important source of downward risk for both India and a large part of the region in Asia because Asian countries have received higher rates than other parts of the world because they export more to the US. For example, we have even larger downgrades for Southeast Asia, because they are a little more exposed to export.
We see no solution to rate the rate voltage in the short term. If this situation persists, do you think the risk that we will be over will be extended and can you go for further revision of the GDP prediction?
One thing that is worth mentioning is that, although we downgrade growth reasons, it is not a huge downgrade, it is very modest. And it is partly because the dependence on India in exports to the US is not that great when part of its GDP is not that great. We calculate that it is approximately 1.2 percent of GDP. There are also many positive things going on in the Indian economy … very robust domestic demand, strong public investments and now more private investments. And it is still a very bullish prediction about India. It is one of the highest growth rates in the region.
Do you think the time has come to provide some support to Indian exporters?
There is a logic. If companies are very negative and they can prove that they are very negatively influenced by the higher rates, which were a bit sudden and higher than expected. Then you could argue a plea for temporary support, because you do not want a very capable company to go bankrupt just because it could not endure a shock that was completely unexpected and outside of his control. However, it must have such possibilities, and therefore if it cannot recover within a reasonable time, you should certainly not continue with the subsidies or support. It does not have to be a subsidy, but it can be other types of support, such as tax benefits or credit lines or other things. And we have seen that other economies in the region are committed to this kind of support. So that would be something to consider if it is seen as a sufficiently high -quality priority.
With improving the relationship between India and China, do you think that such a reinforcement of the relationship will help to undergo the headwind?
Certainly, yes, it would help. Whether or not there are other headwinds, if the two largest economies in Asia can have better economic relations and promote greater trade and investments, that will be beneficial for both economies and that can help prevent other negative pressure. But even if there was no negative pressure, it would be positive for the Indian economy.
Apart from the rate and some of the geopolitical tensions we are talking about, what are the other headwind that you think is for India from now on, or short or in the medium term?
We always try to assess the risks, both above and disadvantage. Nowadays we see more disadvantage. One of them is still geopolitics. We still have wars in the middle and in Europe and if they turned in different directions, if there could be another shock of the raw material price, and we know that India is dependent on much imported oil, that can be a downward risk. In our research into the consequences of climate change, we also discovered that India is more vulnerable to climate change than some other economies in the region. So that is definitely a risk factor with larger floods, larger heat stress that could cause challenges. We know that it happened, not this year. This year was a good agricultural year, but certainly in previous years. And that can occur more often in India in India in the future.
What are the other tail wind, apart from the GST reform that you think they will support India?
India is a young country, so they have a demographic dividend that they now enjoy, such as two -thirds of the population of working age. It has offered some advantages that other countries that have undergone this demographic transition also enjoyed, but that can soon shift, so due to the aging of the population, decreasing fertility. In the future, that can also be a headwind if the share of the working age population starts to shrink over time. But it can be related to this, but in many parts of Asia we have just seen a pretty robust growth in a pretty robust domestic demand that has helped to support growth. And I think India, by having a large population and with both government spending, increasing and infrastructure and now also efforts to actually help more money in the hands of consumers and that ensures very positive domestic demand conditions that can be supportive, especially when the external environment is weaker or more challenging. So that can help compensate. The timing of these GST reforms and the earlier income tax reductions are positive in that sense.
The influx of BDI is delayed in India. Where do you think the policy measures are missing, or what else can be done to speed up this process or to speed up foreign investments in India?
This is an area where we have tried to support the efforts of the government to improve the business environment that can attract foreign investments, and really domestic private investments. One of the issues that emphasizes a lot at this conference that I have attended is the deregulation. Now they have a deregulation committee. It is really important because there are many stories where foreign companies have felt that there is certain, the time needed and the number of state governments you have to talk to, and so on. There are still problems with the bureaucracy, but that can be improved. We also support the improvement of logistics in the country. We have some financing that gives the government priority, so that we help to make cities such as growth and the city planning and infrastructure. And finally we support efforts to improve the skills training of employees to meet the requirements of companies in sectors that are considered a high potential.
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