New Delhi, Feb 12: Growth impediments and political uncertainty notwithstanding, India will sustain its present growth rate, predicts fund manager Jardine Fleming.``We do not believe that India faces anything like the finance sector difficulties which are likely to constrain GDP growth in Korea and ASEAN over the next couple of years,'' says Jardine Fleming's regional strategist Andrew Houston.
In the short run, India's inefficiency has saved it from a financial sector crisis and high real cost of domestic credit remains medium term impediment to industrial development, Houston says in his report on India. According to the report, the growth in GDP would depend increasingly on industrial pick-up as agriculture may not be able to sustain the high growth path repeatedly.
With the first round of Lok Sabha elections in less than a week, there is a widespread view within India that the new government would provide fresh impetus to the implementation of private sector infrastructure projects.
The JardineFleming report says although power sector is likely to remain a problem area even after the elections, increased overall spending in infrastructure could accelerate the country's GDP growth by the second half of 1998.
Drawing a comparison with the problem struck ASEAN economies, the fund manager says the banks in India are rigorously monitored by the central bank, Reserve Bank of India (RBI).
``Elsewhere in Asia, the prospects of economic recovery depends heavily on efforts to recapitalise the bankrupt financial institutions. Luckily for India, the economy remains at an early stage of financial liberalisation and the RBI has been given advance warnings about potential pitfalls of financial sector liberalisation,'' it says.
Unlike in the ASEAN, Indian banks have very high reserves (about 35 per cent) with the RBI against their deposits while their exposure to real estate operations are negligible at about one per cent. In the ASEAN, high level of exposure in the real estate development was one of majorreasons for the current debacle in the financial markets with banks and institutions going bust. However, the sharp depreciation in the currencies of ASEAN countries is likely to affect India's exports as the competitiveness it currently enjoys would be eroded. In such a scenario, the forecast of 6.5 per cent growth in 1999 looks optimistic. On the downside, the report cites overcapacity in key manufacturing sectors like cement, automobiles, petrochemicals and steel plaguing the industrial growth.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
