Reading into India’s economic future

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April. 2 – Recently The Asian Development Bank (ADB), a major lender in Asia looked into the crystal ball, in a bid to predict India's economic future. What it found was that although growth might momentarily fall this year, and inflation is at a 13 month high of 6.68 percent, India's strong economic backbone would prevent the country from crippling over.

A report by Forbes noted that if India is able to keep food price inflation moderate, lower interest rates to sustain high levels of investment and contain the fiscal deficit, chances are we could be looking at an 8 percent growth in GPD, even in the face of a global recession. Asian markets are expected to expand by 7.6 percent in 2008 and 7.8 percent in 2009 while China is expected to grow by a solid 10 percent in 2008.

A report by the ADB says India's growth is expected to slow down to 8 percent in 2008-09, only to pick up momentum again at 8.5 percent in 2009. Previously, GDP stood at 8.7 percent in 2007-08 and 9.6 percent percent in 2006-07.

The ADB reports also projects Wholesale price inflation in India to stay at a moderate level of 4.5 percent in financial year 2008. Nonetheless inflation pressure will persist as the domestic output of foodgrain and vegetables is expected to remain tight in 2008 on subdued sowing of the winter crop in October 2007.

Price increases will be highest in Central Asia with two digits inflation rate, while inflation is also running at an 11-year high in China and is a threat to other countries like Viet Nam, said ADB. Inflation is expected to "spike" in 2008 and could hit a decade-long regional high with an average of 5.1 percent this year and 4.6 percent next year in the whole region, the report said.

The current account deficit is projected to widen to between 2.2 percent and 2.6 percent of GDP, the ADB said.

The rupee-dollar exchange rate is assumed to remain relatively stable in 2007-08 and 2008-09. Exports are therefore expected to grow at between 16 percent and 18 percent, partly because of the sizable share in the total of refined petroleum products (nearly 20 percent), whose prices are on the rise, it added.

The agency said removing bottlenecks to private sector growth and competition in India could generate an additional 2 percent of GDP growth and all levels of government must reengineer laws and procedures to reduce barriers to firms entering any product area.

Meanwhile Xinhua reported the ADB as saying that growth in East Asia is expected to decelerate in 2008 to 8.1 percent from 9.3 percent in 2007. Southeast Asia will slow to 5.7 percent in 2008, from 6.5 percent in 2007, as its export prospects are likely to be affected by a slowdown in the global economy, said ADB.

Only Thailand is expected to post higher growth after a return to normalcy in politics. Vietnam's economic expansion will moderate as it grapples to "keep a lid on inflation", said ADB.

South Asia is also expected to "lose some steam" in 2008 mainly on moderation of growth in India. Pakistan, Bangladesh and Sri Lanka will also be affected by economic deceleration in major markets, as garment exports are expected to suffer, said ADB.

Growth in Central Asia is expected to decelerate sharply to 7.5percent in 2008 from double digit levels in recent years on the back of weaker expansion in the region's largest economy, Kazakhstan, said ADB.