ADB scales down India's growth rate to 4 percent

Thursday, 19 September 2002, 07:00 Hrs
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NEW DELHI: Reduced agricultural output and a moderate growth in exports to major markets have led the Asian Development Bank (ADB) to estimate slower Indian economic growth at four percent in fiscal 2002-03.

This is a major fall in expectations as the ADB had in April said the Indian economy would grow at a healthy six percent.

The Indian government however has a better outlook. It expects its gross domestic product (GDP) to grow at 5.5 percent despite the severe drought that has hit most parts of the country due to the failure of the monsoon this summer.

The ADB's predictions are contained in its "Outlook 2002 Update" report released Wednesday from its office in Manila, the Philippines.

While the ADB report is optimistic of a further improvement in South Asian economic performance with the expectations of mild global recovery and more favorable weather for agriculture, it expects real Indian GDP to grow by four percent in fiscal 2002 and six percent in fiscal 2003.

"Expectations that the mild recovery of a few months ago would be sustained have been belied by drought conditions prevailing in many parts of India as a consequence of delayed monsoon rains. Now, floods will also affect fiscal 2002-03 agricultural output," the report states.

Agricultural experts expect a drop of around 10-15 percent in India's food output this year.

The ADB has also scaled down its India economic outlook for the 2003-04 fiscal from earlier expectations of a 6.8 percent growth. One of the main reasons for this is the slower than expected economic recovery in the U.S. and the volatile crude oil prices.

India's approach paper for the plan period 2002-07 has targeted an annual growth rate of eight percent.

"The current lower growth rate indicates that it could be difficult to achieve the targeted eight percent growth rate without significant structural adjustments, especially fiscal adjustments, over the medium term," the report says.

The multilateral institution expects India's inflation to be higher at around six percent in 2002-03 and come down to five percent in 2003-04. The current account deficit is projected to be 0.9 percent of the GDP.

India's annual inflation rate based on the wholesale price index declined from 5.3 percent in June 2001 to 2.2 percent in June 2002, but a hike in prices of petrol and diesel is pushing up the index.

Making a note of the fiscal consolidation program being implemented by the state governments, ADB is critical of the slackening of fiscal reforms by the central government, particularly regarding implementation of value added tax (VAT) that has been postponed by a year till April 2003.

On the trade front, ADB expects India to benefit from the abolition of licensing regime for rough diamonds and emerge as a major international center for diamond cutting and trading.

Simplification of export procedures and new commodity classification are also expected to boost India's foreign trade and tariff administration.

The bank is not too optimistic of India achieving its goal of 12 percent growth in trade as it targets an annual 11 percent cumulative growth over the next five years to corner one percent of global trade.

"Though exports are likely to grow faster this year than last year, the recovery is likely to fall short of the 11 percent export growth projected in the ADB Outlook 2002, mainly because of a weaker than expected recovery of the global economy."

Eyeing a bigger role in India's infrastructure reforms, the ADB report states that reforms in the power sector have begun yielding results.

"Twelve states have set up electricity regulatory commissions and many of them have started rationalizing tariffs," said the report.

Source: IANS
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