OREANDA-NEWS. India’s economy is expected to grow significantly in 2015 as progress in the government’s structural reform agenda and improved external demand lift investor confidence, says a new Asian Development Bank (ADB) report.

ADB’s flagship annual economic publication, Asian Development Outlook 2015 (ADO), released today, forecasts India’s gross domestic product (GDP) will grow by 7.8% in the fiscal year ending March 2016 (FY2015), driven by improved performance in the industry and services sectors. Growth momentum is expected to build to 8.2% in FY2016.

“India is expected to grow faster than the People’s Republic of China in the next few years. The government’s 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,” said ADB Chief Economist Shang-Jin Wei. “India’s economic prospects look promising but there are still many challenges.”

Growth is forecast to have picked up in FY2014 to 7.4% as the industry and service sectors both expanded, inflation declined, and efforts to reduce bottlenecks in infrastructure investment buoyed sentiment and increased the country’s attractiveness to foreign capital flows. Net portfolio investment inflow recovered strongly to more than \$35 billion.

The strong growth outlook is contingent on further acceleration in investment activity. The prospects look promising as policy measures introduced by the government pushed the central bank’s business expectation index to its highest level in two years. Recent measures include 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 labor laws on small and medium-sized industries.

The new monetary policy framework, under which the primary objective is to maintain price stability while remaining mindful of growth, would help in restraining inflation and improve the coordination between monetary and fiscal policy. The impetus given to capital expenditure in the recent budget will improve the expenditure mix significantly and bodes well for growth prospects. The government’s “Make in India” campaign is expected to further boost manufacturing industries and urbanization.

One of India’s most pressing policy challenges is to promote cities as engines of economic growth and jobs, the ADO notes. To fully reap the benefits of urbanization, the government must make further efforts to coordinate urban and industry planning to attract industries into cities, and provide the necessary supporting infrastructure.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.