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Stating that the outlook is for a "robust recovery based on resumption of trend agricultural performance and continued buoyancy in industry and services", the ADB said the Government could help guide the economy back to a high growth path through an aggressive fiscal adjustment programme and other reforms.

NEW DELHI, April 28

THE Asian Development Bank (ADB) has said Indian economy would clock 6 per cent growth this fiscal even as it cautiously laced this with the proviso that "sustaining rapid growth will require action to reduce the large fiscal deficit and reinvigorate the economic reforms".

Releasing this year's Asian Development Outlook (ADO), the Manila-based regional development Bank's Assistant Chief Economist, Mr Jean-Pierre A. Verbiest, said assuming normal monsoon conditions, the economy is projected to grow by 6 per cent in 2003-04 with agriculture and services growing at average rates.

Exports are likely to grow at over 15 per cent in 2003, based on a moderate revival in world demand, while the current account surplus should be maintained, assuming fairly stable oil prices, a positive net trade balance in invisibles and a marginally appreciating currency due to large foreign exchange reserves.

Stating that the outlook is for a "robust recovery based on resumption of trend agricultural performance and continued buoyancy in industry and services", the Bank said that the Government could help guide the economy back to a high growth path through an aggressive fiscal adjustment programme and other reforms.

"This will revive business confidence as well as public and private investment, including FDI," it said.

The report said that compared with an average growth of around 6 per cent through the 1990s, GDP growth in the country was "disappointing", at an average of 5 per cent in 2000-01 and 2001-02 and is now estimated to have further declined to 4.4 per cent in 2002-03.

It said the recent slowdown in the country's growth was attributable to structural constraints, arising from fiscal imbalances, which adversely impacted investment.

Recent average investment and savings rates of around 24 per cent and 23 per cent respectively are lower than the peak rates of around 27 per cent and 25 per cent achieved in 1995, the report said adding that the situation changed significantly during the late 1990s with declining rates of public investment.

The share of public sector investment in GDP declined from 11.2 per cent in 1986-87 to 8.2 per cent in 1993-94 and further to 6.6 per cent in 1998-99 and has now settled at 6.3 per cent of GDP. Private investment failed to fully replace public investment since it was also crowded out by a large transfer of private savings for public expenditures through the financial sector by as much as 40 per cent.

"The effect of this crowding out has been further exacerbated by policy uncertainties and slow progress of reforms in some sectors," the report added.

ADB said the country's basic macroeconomic problem of a large fiscal deficit has not been fundamentally addressed. The projected central government fiscal deficit for 2003-044 is 5.6 per cent. Since the actual deficit usually overshoots the projected deficit by at least 0.5 per cent, it is likely that 2003 fiscal will end with a central government deficit of about 6 per cent and after adding the combined deficit of the state governments, the total fiscal deficit is likely to exceed 9.5 per cent of GDP.

In this regard, the bank called for further fiscal consolidation to sustain rapid economic growth, coupled with higher infrastructure investments, technology development for improvements in competitiveness and the removal of various rigidities in labour laws.

Taking a regional perspective, the bank said the Severe Acute Respiratory Syndrome (SARS) epidemic is likely to depress economic growth in developing Asia by 0.1 to 0.2 per cent in 2003, but the 41 economies that make up the region would still be the world's economic bright spot with aggregate growth in gross domestic product of 5.3 per cent. It said the economic impact of SARS is currently confined to East Asia and south-east Asia.

"The region's strong fundamentals are reflected by the high level of reserves and low rates of inflation, leaving it in a good position to weather an uncertain external environment and the SARS outbreak," the ADB's chief economist, Mr Ifzal Ali, said.

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