Asian Development Bank projects 7% GDP growth for current fiscal

NEW DELHI: India’s economy is likely to remain sluggish this fiscal and pick up momentum only in 2013-14, the Asian Development Bank has said, urging the government to fast-track reforms and address constraints that have held back investments.

The Manila-based bank has forecast 7% growth for the country in the current fiscal and 7.5% the next year. “The outlook is for a moderate pick up,” says a report released by the bank on Wednesday, projecting 6.9% growth for the just-concluded fiscal.

“An expected easing in monetary policy after a long period of persistent inflation and rate hikes might help stimulate investment over the coming year, but its impact is likely to be limited until obstacles like land purchase and environmental regulations, which are currently deterring both domestic and foreign investors, are addressed,” said Changyong Rhee, ADB’s chief economist.

Though the bank’s forecast lags the government’s expectation of 7.6% growth in the current fiscal, the report warns that even this projection is subject to risks such as deterioration in the Eurozone, poor monsoon, fiscal slippage and a continued policy logjam. The report has flagged the “growing sense of a national policy paralysis” because of the lack of political consensus on key issues as one of the primary reasons for the deceleration in investments.

“Inconsistent policy making can also damp investor confidence by raising transactions costs and creating uncertainty about the business environment,” says the report. The bank’s ‘Asian Development Outlook’ is more positive on inflation, but warns that there is considerable suppressed inflation as fuel prices have not been increased in line with hardening international crude prices.



It says inflation is expected to continue to decline on the expectation of normal monsoons and more stable global commodity prices, pegging the average rate of inflation at 7% in the current fiscal and 6.5% the year after. The report estimates the average price for crude oil at $112 a barrel and points out that the moderation in the growth of non-oil imports in this fiscal and improved economic performance in the advanced countries in the next fiscal will help bridge the current account deficit.

The current account deficit is expected to decline to 3.3% of GDP in the current fiscal and further drop to 3% in 2013-14 from an expected 3.6% of GDP in 2011-12. The report notes that while India witnessed a fast 17% drop in poverty levels between 1993-94 and 2009, according to the $1.25 poverty line devised by the World Bank, inequality has risen in this period.

“Another 240 million people could have been lifted out of poverty over the past 20 years if inequality had remained stable instead of increasing as it has since the 1990s,” said Rhee. According to the report, China’s growth is likely to slow to 8% in the coming years. Asia, excluding Japan, will expand 6.9% this year, slower than 7.2% in 2011, but its growth will quicken to 7.3% in 2013.