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ADB predicts buoyant trend in Indian economy

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"The outlook for India is pretty buoyant as the Indian economy would be able to sustain over 7 per cent growth in the next two years as well.''

New Delhi , April 28

INDIA'S overall economic growth would be on an `accelerating' path from 7.3 per cent in 2003 to range between 7.4 and 7.6 per cent in the next couple of years as an upswing in the country's current business cycle is riding on an underlying long-term growth path, the Asian Development Bank said on Wednesday.

Releasing the Manila-based regional development bank's annual Asian Development Outlook 2004 (ADO), ADB's India Resident Mission Chief, Mr Louis De Jounghe, said, ``the outlook for India is pretty buoyant as the Indian economy would be able to sustain over 7 per cent growth in the next two years as well.'' Markets expect reforms to continue and there is also a broad consensus among political parties on this.

Mr Jounghe indicated that the bank plans to tap the domestic debt market though the amount and timing remain to be decided. ADB raised its first rupee bonds in February 2004 close to Rs 500 crore. The bank which lent $1.5 billion to India in 2003 plans to augment this to $2 billion this fiscal mostly to be advanced to infrastructure projects.

In a presentation of the ADO to media, India Chief Economist, ADB, Mr Sudipto Mundle, said, "India's growth was quite remarkable, after China" and said that whichever Government comes after elections, the economic reforms would be continued as they had become irreversible for sustaining higher growth to tackle the twin problems of high fiscal deficit and stagnant or shrinking employment growth. He also highlighted the structural problems plaguing the economy and how over the years the shift to higher growth based on services and manufacturing segments had assumed ascendancy over agriculture.

India's high aggregate growth in fiscal 2003-04 reflected acceleration in services sector growth, combined with a strong recovery in agriculture and stronger growth in industry. With help from the booming service sector, the current high growth momentum is likely to be maintained through this and next fiscal. But this is predicted on the maintenance of sound macroeconomic fundamentals, including the expected launch of a serious fiscal consolidation effort following elections in May 2004.

The report said the current year would be an important one for India's economic future. ``If the new Government that takes over in May 2004 fails to come to grips with the fiscal deficit and other urgent reform issues, this will erode business confidence and undermine investment, resulted in reduced growth.''

But the report also draws attention to the negatives such as the large fiscal deficit, the short-term and reversible nature of foreign exchange inflows particularly portfolio investments, poor quality infrastructure and the slow growth of employment. Poor performance in India's human development indicators and growing inter-regional disparities are also major concerns, Mr Jounghe said.

Stating a that serious obstacle to sustained growth of the economy is inadequate power supply, it said continuing and acute shortages of power are as much due to inadequate generation capacity as to huge transmission and distribution losses from theft as well as technical inefficiencies. These losses amount to nearly one third of power generated and a significant reduction in them would considerably ease power shortages even before new generation capacity comes on stream. ``All of these issues require improved corporate governance in the power sector,'' the report said.

The report also warned India, Pakistan and Taiwan of a banking sector crisis unless the authorities push through reforms since the pressure of globalisation had exposed the shortcomings of the financial sector of these countries including low capitalisation ratios, limited expertise in risk management, rising bad loans and inadequate banking supervision and regulation.

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