India's growth to fall by 8 percent

Tuesday, 27 March 2007, 05:00 Hrs
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Manila: With signs of overheating, rising inflation and slowdown in construction business, the Indian economy is likely to see a slower growth of 8 percent in 2007-08 against 9.1 percent this fiscal, says the Asian Development Bank (ADB).

"But the correction will not be sharp in large measures because several drivers will continue to hold sway," says the bank's annual report - Asian Development Outlook: 2007 that was released here.

According to the report, some of the key drivers for the Indian economy, albeit at a lower level of impact, include addition to industrial capacity, expanding demand for consumer durables and export growth.

"Thus despite a firm monetary position, momentum should ensure a soft landing," says the report, and adds that for fiscal 2008-09, the Indian economy should expand by 8.3 percent, even though inflation will remain at 5 percent.

"Two years of above trend growth are causing inflation. Optimism over growth prospect has brought high capital inflow and currency appreciation pressure," says the report, adding agriculture stagnation remains a key challenge.

The bank admits that its predictions may go slightly awry due of some reasons, such as excessive contraction of credit, failure of autumn harvest, exchange rate volatility, export slowdown and inflated real estate and share prices.

The ADB report says among the developmental challenges facing India are lifting farm incomes, accommodating those who are shifted out of farmland, education and ensuring the continuation of fiscal consolidation process.

The report also devotes significant attention to an ongoing controversy in India over the acquisition of farmland for industry that even resulted in some deaths in some parts of the country on account of protests and clashes.

"Given that large numbers of agricultural labourers who have no title to these lands nevertheless depend on them for sustenance, the issue is exceptionally emotive," it says and also offers some solutions.

"The government is in a position to play a crucial role in alleviating these tensions," says the report, and suggests measures such as suitable compensation for the displaced, retraining schemes for jobs and infrastructure support.

On the overall scenario for Asia, the report says the region will grow at 7.6 percent in fiscal 2007 and 7.7 percent in fiscal 2008, after the expansion of 8.3 percent in 2006, the fastest rate in over a decade.

"Prudent macroeconomic management will ensure that developing Asia's economic outlook will remain favorable," said ADB chief economist Ifzal Ali, adding that China and India contributed 70 percent of the region's economic growth in 2006.
Source: IANS
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