ADB downgrades India’s FY14 growth forecast

Oct 03 2013, 01:56 IST
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SummaryThe Asian Development Bank (ADB) cut its FY14 GDP growth forecast for India to 4.7% from 6%, in what it described as a “sobering picture” of Asia’s third largest economy.

The Asian Development Bank (ADB) cut its FY14 GDP growth forecast for India to 4.7% from 6%, in what it described as a “sobering picture” of Asia’s third largest economy.

India had been under a lot of pressure with the recent depreciation of the rupee and capital outflows, which added to structural constraints and weighed heavily on the country’s prospects for returning to the high growth path of the last decade, the ADB report said. “The recent financial market turbulence is a timely reminder of the need for structural and fiscal reform not just to ensure long-term growth but also to keep financial markets stable in the short-run,” the report quoted ADB chief economist Changyong Rhee as saying.

The ADB’s forecast is lower than that of the finance ministry, which sees growth for the current fiscal at above 5%. The ADB report cited India's April-June 2013 gross domestic product (GDP) growth, which at 4.4% was the lowest in four years, and said that although the government and the Reserve Bank had taken a number of steps to address financial market concerns and improve growth prospects, like raising of interest rates, opening up Foreign Direct Investment in various sectors, and introducing 10% import duty on gold, these measures would be useful to alleviate only immediate pressures and proper macroeconomic policies should be continued.

“Containing inflation pressure, consolidating fiscal positions by reducing general subsidies, and managing well recently passed reform bills to keep fiscal pressures in check should receive high priority. The authorities should allow exchange rate flexibility to ensure sufficient stock of foreign reserves while balancing its impact on inflation and corporate foreign liabilities,” the report said.

ADB also cut its fiscal year 2015 forecast to5.7% from 6.5% and said structural reforms must be strengthened to speed up large infrastructure projects, encourage foreign direct investment, and alleviate other constraints to long term growth. It described the cabinet committee on investment as a ‘bright spot’ for expediting regulatory clearances in key infrastructure sectors such as power, roads, and railways.

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