Search the Internet          Tips  Sites: Finance, Investment

ADB sees India growth at 6-7 per cent if reform goes on

India should be able to maintain six to seven per cent annual economic growth in 2001 and 2002 as long as it sticks to its economic reform drive, the Asian Development Bank said on Thursday.

The country has made rapid strides in opening its economy but "scepticism still abounds because of India's past record of being slow to accommodate change", the Bank said in its Asian development outlook for 2001.

"The government must remain firmly committed to its reforms which include improvements in fiscal management," it said.

Strident political and trade union opposition has slowed India's liberalisation programme, originally launched in 1991.

The ADB pegged India's GDP growth for this year and the next at six to seven per cent compared with six percent in 2000 but said this hinged on a good monsoon and steady oil prices.

"On the assumption no major internal and external disturbance arises, such as adverse weather patterns or oil price increases, the economy can sustain real GDP growth rates of six to seven per cent a year in 2001 and 2002," the report said.

The government has set no official growth target for this year but a senior finance ministry official forecast 6.5 per cent growth in 2001/2002 following the presentation of a Budget in February ushering in a "second generation" of economic reforms.

A quarterly Reuters Poll of 10 independent financial institutions in March showed an average forecast of six per cent GDP growth for fiscal 2000/2001, and a rise of 6.27 per cent for 2001/2002.

The ADB added that the US economic slowdown meant greater uncertainty about investment and exports.

CURB SPENDING

India must curb spending by reducing government size and cutting subsidies and direct the funds instead to creating infrastructure to achieve its hopes of attaining annual growth of eight to nine per cent, the report said.

The government says it needs to achieve around nine per cent annual average growth over the next decade to halve poverty amid India's billion-plus population.

The report warned that a lack of public and private infrastructure investment could hinder future industrial growth.

"In particular, the failure of state governments to provide basic infrastructure severely undermines the long-term growth potential of the economy," the Bank said.

Besides more "focused spending", the government needs to speed privatisation and tackle public sector financial waste.

Inflation in 2001 and 2002 was likely to be around five percent, the report said. Inflation as measured by the wholesale price index has been hovering at just over four per cent after hitting a five-year peak of 8.57 per cent in February due to a leap in domestic energy prices.

The report said the balance of payments was likely to stay stable with the current account deficit improving to about one percent of GDP in 2002 from an expected 1.5 to 1.7 per cent in 2000/2001. It was 0.9 per cent in 1999/2000.

Export growth was likely to be 12 to 13 per cent despite the global slowdown, the report said. But that was well short of India's 18 per cent export growth forecast for this year.

Tell us what you think of this report