ADB raises India GDP estimate for FY11 to 8.5%

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fe Bureau: New Delhi, Sep 29 2010, 23:21 IST

Tags: Asian Development Bank | India GDP

India, the world’s second-fastest growing economy, will expand 8.5% this financial year, the Asian Development Bank said on Tuesday, raising its estimate from 8.2% predicted in April. However, the bank cautioned that high inflation and a rising rupee could threaten the country’s sustained growth.

The bank maintained its 9.6% growth forecast for China for the financial year in its update of its 2010 Asian Development Outlook. According to ADB, while India’s growth will be 8.7% next financial year, Chinese growth will cool to 9.1% in the same period.

According to ADB Chief Economist Jong-Wha Lee, India’s growth is supported by “robust investment, increased capital inflows and stronger industrial output, buoyed by rising consumer demand.”

India’s current account deficit will rise from 1.5% to 2.7% of GDP “to reflect a sharp pickup in trade flows, with exports projected to grow by 18% in (2010-11), and imports by around 20%,” ADB said.

“Rupee’s appreciation by more than 11% in real terms between Aug 2009 and Aug 2010 poses an additional challenge for policymakers as they seek to maintain high growth while winding back monetary and fiscal stimulus measures used to help the economy recover from the global economic crisis,” the ADB report said. The bank also raised forecast for annual average inflation this fiscal year to 7.5% from 5% projected in April.

“High inflation and the rupee’s sharp appreciation threaten to erode India’s export competitiveness and its plans to further expand economic growth to 9% to 10% in coming years... Prolonged low