Tuesday, September 22, 2009

ADB optimistic about India's growth

The Asian Development Bank (ADB) hiked its growth forecast for India today (September 22), saying pump-priming measures and aggressive monetary easing had boosted the outlook for the region's third-largest economy. The ADB projected India's economy would expand by six per cent in 2009, up from a five per cent estimate given in March, and grow by seven per cent in 2010, a revision from its earlier forecast of 6.5 per cent. "The government's strong fiscal stimulus, complementing the Reserve Bank of India's aggressive monetary policy easing, has successfully brought last year's economic slowdown to an end," ADB chief economist Jong-Wha Lee said.

The Manila-based bank attributed its optimism in its 2009 update to a rise in public spending, better capital inflows, stronger industrial output and signs of improved business confidence. Agricultural output in 2009 is expected to be "stunted" by a bad monsoon and exports will be weak, the ADB said. But India's "adroit economic management in the form of fiscal stimulus packages and accommodative monetary policy has minimised damage from the global financial crisis", it added. This is "supporting a relatively strong economic expansion again", the ADB said.

India logged 6.1 per cent growth in the first quarter of 2009, a modest rise on the previous two quarters, the ADB noted. The upturn reflected a recovery in industrial growth to five per cent from less than two per cent in the previous six months. Weak farm production in the second and third quarters is likely to weigh on growth, although a rebound is expected in the final quarter.

The report said growth in 2009 would be driven by government spending, and the combination of fiscal policies and renewed investor confidence should sustain expansion in private consumption and investment. In 2010, forecasts for better rainfall, a rebound in exports as the recession ends in industrial economies, and stronger investor confidence will underpin further economic growth. One potential threat to the economy is domestic food price inflation, which may create a dilemma for the central bank, the ADB said. The Reserve Bank of India will have to keep inflation expectations in check but at the same time not "choke off a recovery", it said.

Source: The Economic Times

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