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India to grow slow in next fiscal: ADB
By agencies
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Sunday, 20 March 2005, 20:30 IST
NEW DELHI: The Asian Development Bank (ADB) has forecast a lower 6.1 percent economic growth for India in the next fiscal from the estimated 6.9 percent in 2004-05.
"In 2005-06, GDP growth is likely to decline to 6.1 percent mainly on account of an expected cyclical decline in the growth of industry and services to 5.2 percent and 7.3 percent respectively," ADB said in its latest Economic Bulletin.
The lower growth projection from ADB is in contrast to Finance Ministry's expectation of 7-8 percent growth in the coming years. For 2004-05, the Central Statistical Organization (CSO) has projected 6.9 percent growth over 8.5 percent in 2003-04. The growth projection is based on the assumption of 4.4 percent growth in farm sector.
"Despite an expected downturn in industrial business cycle, industry is projected to grow at 6.7 per cent. Services sector growth is projected at 7.7 percent," ADB said.
While projecting a lower growth, ADB forecast lower 3 percent inflation during the next fiscal as compared to 4.2 percent in 2004-05 and 6 per cent in 2003-04.
However, ADB pointed out "downside risks that could undermine the growth and inflation projections include a weak monsoon, a sharp increase in oil prices, inadequate fiscal consolidation and hardening of domestic interest rates following tightening of money supply growth".
"The expected increase in US Fed rate could lead to a decline in capital account surplus," it said.
ADB also warned that growth in investment especially in infrastructure holds the key to sustaining high growth over the long run.
While investment has grown to 26.5 percent of GDP till 2003-04 from 26.3 percent in 2002-03, ADB said "current rate of infrastructure investment is 3.5 percent of GDP is way below the required rate of 8 percent estimated by an expert group on commercialization of infrastructure projects.
"The current rates of both private and public infrastructure investments have been well below target. The key problem in attracting adequate private capital in infrastructure is lack of appropriate risk allocation between creditors and investors," it said.
In this context, ADB said, "Development of a domestic market for long term securities is therefore critical for infrastructure financing."
"The main constraining factor for stepping public investment in infrastructure is the large consolidated fiscal deficit of center and states", ADB said.