ADB Projects India's GDP Growth At 5% For FY10

 @ibtimes
on April 01 2009 1:55 AM

In its flagship annual publication 'Asian Development Outlook 2009' or ADO 2009 report released on Tuesday by the Asian Development Bank's South Asia Department Director Bruno Carrasco, India's gross domestic product or GDP growth for the fiscal year 2010 was projected to decline to 5% from 7.1% in fiscal year 2009. The report, however, said it should speed up next year, as the global economy is expected to recover and lower local interest rates spur private investment and manufacturing.

The drop in GDP was attributed to the uncertain global environment. The report also stated that there is little scope for further fiscal stimulus to boost the economy.

The ADO 2009 added that the fiscal stimulus measures that the government announced between December 2008 and February 2009 should allow the country's GDP growth to rise to 6.5% in fiscal year 2011.

Inflation, the report said, should remain low in 2009-10 as well as in 2010-11, due to comfortable agricultural output, lower taxes on goods and weak domestic demand as also a decline in global commodity prices. The ADO 2009 forecasts inflation of 3.5% for the fiscal year 2009 and to rise a little to 4% for fiscal year 2010, as domestic markets recover and international prices of oil and non-oil commodities edge up.

The forecasts for fiscal year 2010 and fiscal year 2011 were based on five key assumptions, such as monetary conditions will continue to be accommodative, domestic food supply position will remain comfortable, global oil prices will average $43 a barrel in 2009 and $50 a barrel in 2010, non-fuel commodity prices will decline in 2009, but rise marginally in 2010, and a recovery in industrial economies will begin in the second quarter of 2010.

The report, however, warned that there are downside risks and challenges ahead. Prolonged recession in the major industrial economies beyond the second quarter of fiscal year 2011 could hamper India's recovery.

The latest global economic crisis has forced the government to set aside its plans for fiscal consolidation. The central government's budget deficit is estimated at 6% of GDP in the 2009 fiscal year, up from a targeted 2.5%. But off-budget items and deficits of state governments are expected to bring the estimated general government deficit to 10% of GDP.

ADO 2009 urged the government to review tax policy, the quality of public expenditure, and the effectiveness of public programs to ensure that it has room for the infrastructure and social sector spending that is necessary for achieving rapid, longer-term growth.

Carrasco pointed out that though there was limited space for fiscal stimulus, the Reserve Bank of India or RBI could still take monetary steps if required. That limited fiscal space leaves the remaining option at monetary easing, if RBI feels that there is some degree of further scope of easing the policy rates without undermining inflation, strong reserves for liquidity. The RBI may wish to consider further measures, he added.

For the following fiscal year, however, ADB's 'Outlook' report projected a comparatively rosier scenario. India's GDP growth rate, it said, should speed up in 2010-11 with recovery in the global economy and lower domestic interest rates spurring private investment and manufacturing.

The World Bank has scaled down India's economic growth rate forecast to a dismal 4% for the fiscal year 2010, down from an estimated 5.5% for the fiscal that ended on Tuesday.

India, according to the World Bank's Global Economic Prospects 2009 released ahead of the G-20 meeting in London, could witness some recovery in 2010-11 with growth likely to bounce to 7%.

OECD projection

The Interim Economic Outlook released by Organization for Economic Co-operation and Development (OECD) said with emerging economies facing the possibility of abrupt slowdowns, India's Gross Domestic Product growth rate could slip to as low as 4.3% in fiscal year 2009.

The Interim Economic Outlook released by Organization for Economic Co-operation and Development (OECD) said India's GDP growth rate could slip to as low as 4.3% in fiscal year 2010, with emerging economies facing the possibility of abrupt slowdowns.

Pointing out that the economic growth in India will ease to 4.3% in 2009-10, the Outlook said that China is likely to grow by 6.3%. However, the economies in Brazil and Russia are expected to decline by 0.3% and 5.6% respectively.

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