The Asian Development Bank in line with other reputed bodies such as the IMF, OECD has predicted a lower GDP for India in 2013 at 4.7% compared to 6% projected only 6 months earlier.
The ADB outlook is different from other reports as it predicts a lower output growth in China from earlier 8.2% to the current 7.6% and calculates a negative impact on GDP growth in other neighboring countries depending upon their export exposure to China.
For India, it has been calculated at 0.2 %. It is interesting to find that a few countries like Mongolia, Turkmenistan, Hong Kong, South Korea and Kazakhstan are between 85% to25% export-dependent on China and if growth falters in Beijing, the impact on these countries would be disastrous with far reaching consequences on other neighbors.
For India, the report picks up drop in fixed capital formation from 32.3% in FY2008 to 29.6 % in FY2013 caused by structural and procedural delays, widening CAD from(-) 2.1% of GDP in 2009 to (-) 5.1% in 2012 accentuated by weakening of rupee leading to rising oil and gold import bills and contraction in manufacturing led by capital goods and consumer durable segments.
While India?s import coverage is 6.8 months (lower than Philippines, Malaysia, Thailand and Singapore) the net direct investment, which is more permanent in nature was $8.7 billion during April-July. But the net portfolio inflows dropped by $5.8 billion in the first 5 months of the current fiscal.
A distinguishing feature of the report is that it points to a positive correlation between growth and better governance particularly for those countries whose per capita income reaches a certain level and India is one of them.
Better governance has been defined in terms of controlling corruption, government effectiveness, political stability and regulatory quality, rule of law and voice and accountability and all are statistically significant at the 1% level with positive coefficients.
A broader definition of economic growth includes infrastructure quality, access to adequate sanitation, HDI, maternal mortality rate, under-5 mortality rate and years of schooling.
Statistical analysis has also proved that relationship between poor quality and non-reliable infrastructure and economic growth is stronger than any other factor in Asia of which China and India are the major members.
The wide differential between growth rates achieved by China and India during 2011-2013 can be largely explained by this factor.
ADB suggests 3E remedies to improve public service delivery namely, empowering citizens, engaging local governments and private sector and expansion of information and communication technology.
It must be appreciated that India has initiated significant policy interventions in all these areas, but over the years the weak implementation process of these laudable policies has pulled down the growth of the economy at much lower level than warranted.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal