The Hindu Business Line : India’s GDP growth to slow down to 8%: ADB

India’s economic growth will slow down in fiscal 2008-09 to 8 per cent as the Reserve Bank of India keeps monetary policy tight and the Government takes slew of measures to rein in inflation ahead of Parliamentary elections next year, the Asian Development Bank (ADB) has said.

In its flagship annual publication, Asian Development Outlook 2008 (ADO), the Manila-headquartered development bank however noted that the economic growth would rebound to 8.5 per cent in 2009-10 on the back of a pick up in consumer spending and more accommodative monetary policy. The country’s central statistical organisation (CSO) has pegged GDP growth estimate at 8.7 per cent in 2007-08.

On inflation

On inflation, ADB has projected the wholesale price inflation at 4.5 per cent for 2008-09. The report expects inflation to be held at 5 per cent in 2009-10. The higher inflation estimate of 5 per cent for 2009-10 comes on the back of an expected pick up in global economy in that year.

ADB’s Principal Economist in India, Mr Narhari Rao told reporters that inflationary pressure will remain in the next 1-2 months, but expressed confidence that the spate of fiscal-and trade-related measures of the Government would have an impact on inflation in the coming days.

On whether he expects RBI to ease monetary policy, Mr Rao said that there was no way the Central Bank would allow easing of monetary policy unless inflation comes under its own comfort zone or target. India’s wholesale price index rose 6.68 per cent in the 12 months to March 15, as compared to 5.92 per cent a week earlier, as food, metal and oil prices went up.

The RBI’s comfort zone for inflation is 4.5-5 per cent.

Mr Rao expressed hope that as inflation comes down monetary policy would be eased so that growth in manufacturing and construction remains at the same rate as was seen last year.

He also said that the Government may have to increase subsidies in certain items such as wheat and rice (through public distribution system).

“The biggest single worry as I see is inflation. What happens if monsoons are not good and international prices remain high? This is definitely a risk. If inflation remains high, we are not even talking about political consequences. That’s a separate issue”.

But there could be a strong economic cost in terms of slowing down of growth. Both the Finance Minister and the RBI Governor have said that they don’t want the inflationary expectations to get built in.

“Once that happens it may require much stronger dose of monetary contraction”, Mr Rao said.

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