New Delhi: Projecting a moderate increase in growth rate for India to 7 percent in 2012-13, the Asian Development Bank (ADB) on Wednesday said strong economic performance would depend on the country’s ability to push reforms agenda and address issues constraining investments.
"The Gross Domestic Product (GDP) growth should edge up to 7.0 percent in FY 2012 (-13) and 7.5 percent in FY 2013 (-14), after falling to 6.9 percent in FY 2011 (-12) from 8.4 percent the year before," said the ADB’s flagship annual publication Asian Development Outlook (ADO).
The government, however, has projected a growth rate of 7.6 percent for the current fiscal and Reserve Bank of India (RBI) is slated to come out with its forecast the next week.
"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.
A number of bills and measures to improve India’s investment environment have been introduced in Parliament, but they are making little progress amidst lack of sufficient consensus for immediate reforms, said ADO.
It further pointed out that the recent rise in the pace of road construction and clearances for power projects is a positive signal, but, "more is needed to substantially increase levels of investment".
As regards 2011-12, the ADO said, the slide in growth reflected falling exports, weaker consumer spending and a slump in investment. Industrial growth dropped to a decade low of 3.9 percent, although services remained robust, contributing nearly 80 percent of overall GDP growth for the year.
On inflation, ADB said, it eased late in the year, after 13 consecutive policy rate hikes by the RBI, but a sharp first-half pickup in exports was not sustained in the second, as global demand fell.
The dip in inflation is expected to continue on the expectation of normal monsoons and more stable global commodity prices, with the average rate expected to be 7 percent in 2012-13 and 6.5 percent the following year.
However the longer-term outlook for consumer prices will also depend on structural reforms to improve production and distribution of food as India’s consumption patterns and incomes change.
It further said that moderation in the growth of non-oil imports in 2012-13 and improved economic prospects in the advanced countries in 2013-14 are expected to help the current account deficit to improve to 3.3 percent in 2012-13 and further to 3.0 percent in 2013-14.