India to clock sustained growth by 2011: Report

Last Updated: Friday, July 24, 2009 - 17:19

New Delhi: Emerging economies, including
India, are set to return to sustained growth trajectory by
2011 on growing domestic demand even as the downturn in the
developed economies is likely to continue for the next several
years, a report has said.

Deutsche Bank Research in a report said that the downturn
in the emerging markets (EMs) would be short-lived compared to
the developed economies and "a rapid return to sustained
growth in many, if not all, EMs is likely by 2011".

"Thanks to solid economic fundamentals, the EM-6 (Brazil,
China, India, Korea, Mexico, Russia) have been (or will be)
able to engineer a more or less rapid recovery by boosting
domestic demand," the report added.

However, the economic growth in the developed economies
would likely be anemic for several years to come due to
continued de-leveraging in the household and banking sector.

Sustained growth momentum for emerging economies in these
tough times is because of factors like limited dependence on
foreign capital flows, a large interest-rate differential as
against developed markets and a capacity to limit the risk of
significant currency depreciation and inflation.

"The EM-6 banking sectors remain, for the most part,
sufficiently well capitalised to support an increase in credit
growth. Lower interest rates therefore by and large remain an
effective tool to support domestic credit growth and
investment," DB Research added.

However, none of the EM-6 would be able to fully offset
the permanent decline in external demand growth.

"Due to permanently weaker global demand and hence weaker
export growth, EMs will not match the above-average growth
rates seen over the past few years," the report said, adding
that even if global financial conditions return to pre-crisis
levels, EM-6 economic growth would remain below its pre-crisis

The report also noted that the domestic demand-led growth
in the EM-6 would not pull the world economy out of the

"However fast demand in the EM-6 grows, it will remain
small in comparison to G-7 demand for the foreseeable future
and will therefore have only a limited effect on G-7 net
exports and economic growth," the Deutsche Bank report said.

The International Monetary Fund recently raised India`s
growth forecast to 5.4 percent for 2009 even as it projected
the world economy to shrink by 1.4 percent this year. China
would expand by 7.5 percent during the same period.

According to the multilateral lending agency, growth
projections in emerging Asia have been revised upward to 5.5
percent in 2009 and 7 percent in 2010.

Bureau Report

First Published: Friday, July 24, 2009 - 17:19

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