TOKYO -- The economic impact of India's demonetization measures in November, in which 500- and 1,000-rupee bank notes were banned, will be "short-lived" as the country is expected to show solid growth this year, the Asian Development Bank's deputy chief economist, Juzhong Zhuang, said on Wednesday.
"Given India's cash economy, the measure inevitably disrupted businesses' spending at small and medium enterprises, and household consumption," Zhuang said in an interview on the sidelines of the Nikkei Global Strategy Forum in Tokyo. "For the long-term health of the Indian economy, however, it will help reduce tax evasion and corruption, which are certainly important issues."
After the currency ban, the ADB in its latest projection in December lowered India's GDP growth estimate for fiscal year 2016 to 7% from the earlier 7.4%. This year, the bank expects 7.8% growth, helped by recent structural reforms such as the passage of a national value-added tax law and the scaling up of infrastructure investment.
For developing markets in Asia as a whole, the bank expects steady growth of 5.7% this year, slightly higher than last year's 5.6%. While looming uncertainties such as U.S. President Donald Trump's protectionist stance on trade could further impact the region's weak exports, Zhuang said he is "cautiously optimistic" on regional growth.
To sustain growth in the region's developing markets, Zhuang cited several long-term challenges, such as closing the infrastructure gap and addressing rising income inequality. While these issues are all "interrelated and not independent," Zhuang said upgrading and scaling up innovation is the key to sustaining growth and raising competitiveness.
As one of the means to close the infrastructure gap, Zhuang said that the Manila-based multilateral bank will collaborate more with the China-led Asian Infrastructure Investment Bank in the future. "Infrastructure needs in developing Asian countries are so huge. From our perspective, we certainly see each other as partners," he said.
AIIB marked its anniversary in January, with 57 countries signed up as members. The same month, Beijing said that 30 more countries have applied to join, which would give the new bank a larger membership than the ADB, which has 67 members.
Some ADB backers have worried the AIIB was created to rival the older bank and expand Beijing's influence in Asia. The ADB's main financial backers are Japan and the U.S., which are not AIIB members. Other Group of Seven countries have joined.
Zhuang said the ADB wants to increase its financing capacity to $20 billion a year by 2020, but the region needs around $800 billion annually for infrastructure investment: "Our lending capacity is only about 2% of regional needs. Resources are quite limited, so there is a lot of room for other multilateral development banks to come in."
Last year, ADB and AIIB signed a memorandum of understanding on cofinancing and joint technical assistance to address the region's development issues. As its first cofinancing project with AIIB, ADB approved a $100 million loan for a road project in Pakistan. The second was a gas transmission project in Bangladesh.
Takashi Matsuo, representative at ADB's Japan office, echoed Zhuang during a panel discussion at the forum, saying, "Infrastructure needs in Asia cannot be solely financed by ADB. We are not competing for a single project. We are partners to complement each other."
In a keynote speech, Masatsugu Asakawa, Japan's vice finance minister for international affairs said his government will continue to provide quality infrastructure investment for the future growth of Asia. "We need to maintain and strengthen open trades, investment systems and infrastructure development," he said.
The forum was co-sponsored by The Nikkei, the Financial Times and Nikkei Business Publications.