In its report, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) said a fragile global economy has "weighed" on Indian economy in recent years, but "delays" in tackling "structural impediments", such as rising inequality, high inflation and infrastructure shortages have also affected the growth rate.
"Indian economy expanded by 4.7 per cent in the fiscal year 2013, up from 4.5 per cent in the previous year. This rate is, however, far below the 9.5 per cent pace registered in the years prior to the global financial crisis," said the report, released at a meeting of UNESCAP here.
Noting that the economy was heading for a rebound, it said the "formation of a new government after parliamentary elections in April-May 2014 also provides impetus to economic reforms".
Talking about the financial market volatility, the report titled 'Economic and Social Survey of Asia and the Pacific 2014' said India experienced capital outflows and sharp currency depreciation in mid-2013 on speculation of a change in the United States monetary policy stance.
"In response, capital flow management tools were introduced, such as lowering the limit on overseas investment. Moreover, after a steady decrease between January and September 2013, the policy interest rate was raised to stem capital outflows," the annual flagship publication of UNESCAP said.
It observed that "macroeconomic imbalances", such as persistently high inflation and "limited fiscal space", have constrained India's capacity to weather capital flow volatility more resiliently.
"Tight monetary policy to contain inflationary expectations and capital flight also had an impact on domestic demand. Consumer confidence deteriorated, with car sales in 2013 declining for the first time in a decade. Fixed investment also slowed, in line with sluggish demand and higher interest rates," the report said.
UNESCAP said subdued output growth pushed up the "measured unemployment" rate by one percentage point to 4.7 per cent.
On inflation, the report assessed that the inflation rate remained high at 9.5 per cent in 2013 and identified weaker currency and cuts in fuel price subsidies as contributing factors for high inflation besides supply constraints.
"High food inflation hit the poor harder, as they spend proportionally more on food purchases, especially cereals and vegetables. Food items account for close to half of the consumer price index in India," it said.
The estimates positive growth in 2013 in merchandise exports and said the pickup was mainly fuelled by strengthening import demand from developed economies but the weaker Indian rupee also helped.
"The current account deficit narrowed to 2.4 per cent of GDP in 2013. In addition to the export rebound, measures to curb sizeable gold imports also played a role. More heavily affected economies were those with large fiscal and current account deficits financed by external short-term capital flows. This highlights the need for a deeper structural transformation to drive India's dynamic competitive advantage," said the report.
Talking about steps taken by India to spur growth, the report referred to some of the recent reform initiatives which include relaxing caps on foreign investment in sectors like retail and telecommunications, setting up an investment committee to speed up the implementation of large infrastructure projects, enactment of a food security act that provides subsidised food grains to two thirds of the population; and introducing clearer guidelines on the land acquisition process.
About the Asia Pacific Region, the report said Asia-Pacific developing economies are experiencing yet another year of subdued growth and called for quick action on the removal of domestic structural constraints and the unlocking of fiscal space to help stimulate growth and support social development.
Structural constraints, such as infrastructure and development deficits, along with external challenges, are keeping the region from realizing its economic potential, according to the report.
"Developing countries in the region are forecast to grow at an average of 5.8 per cent in 2014, up from 5.6 per cent last year. This marks the third successive year of growth below 6 per cent. By comparison, growth averaged 9.5 per cent in the pre-crisis years of 2005-2007 and over 7 per cent in 2010 and 2011," it said.
The report estimates further financial market volatility, expected from the continued normalization of monetary policy in the United States, could cut annual growth by between 0.7 to 0.9 per cent in India, Indonesia, Malaysia, the Russian Federation, Thailand and Turkey.
Addressing the annual gathering, also attended by Bhutanese Prime Minister Tshering Tobgay and many other senior leaders of member countries, UN Under-Secretary-General and ESCAP Executive Secretary Shamshad Akhtar said, "The constrained domestic growth prospects of the region have underlined the importance of productive countercyclical public spending to support inclusive growth and sustainable development".
Akhtar emphasised that developing economies in Asia and the Pacific are experiencing subdued growth for different reasons, including economic rebalancing and sustainability considerations in China, monetary tightening to fight capital flight and inflation in India and Indonesia, and the impact of geopolitical instability on the Russian Federation.
China, India, Indonesia and the Russian Federation are projected to grow at 7.5, 5.5, 5.4 and 0.3 per cent, respectively, in 2014, compared to 7.7, 4.7, 5.8 and 1.3 per cent, respectively, in 2013, the report said.
Launching the report, Akhtar stressed the urgency for bridging gaps in infrastructure and development in the region and addressing environmental degradation in order to promote higher, well-balanced and sustainable growth.
Another priority for ensuring the sustainability of growth is to better address climate change through improved climate finance.
ESCAP estimates an annual infrastructure development funding requirement of USD 800-USD 900 billion in the region.
In a release, ESCAP said it recommends broadening the tax base and rationalising rates; tackling tax evasion and tax fraud; making tax administration efficient; careful sequencing of tax reforms; and better regional cooperation.
ESCAP also proposes the establishment of an Asia-Pacific Tax Forum of experts and officials which it would coordinate, to monitor tax legislation and regulations across the region, help develop regional best-practice, and address issues ranging from avoiding tax competition for foreign investment, to double taxation, and preventing the illicit transfer of funds.