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Asian Development Bank (ADB) on Wednesday said India's economic growth will moderate to 8.2 per cent in 2011-12, but bounce back to 8.8 per cent growth in next financial year (2012-13) as investment climate improves, overall economic activity picks up and planned economic reforms move forward.
The Finance Ministry's Economic Survey, released in February, had pegged India's economic growth forecast for 2011-12 at 9 per cent if nothing goes wrong. Indian economy is said to have recorded about 8.6 per cent growth in 2010-11.
The recent strengthening of crude oil prices could impact economic growth momentum for the current fiscal, say analysts and economy watchers. Tensions in the Middle East and the nuclear anxieties in Japan have further lifted market expectations of higher oil prices.
For its latest India economic growth projections, ADB has factored in an average brent crude price of $104 per barrel during 2011-12 and $112 per barrel for 2012-13, Mr Rana Hasan, Principal Economist in ADB's, India Resident Mission, told reporters here on the occasion of release of ADB's flagship annual economic publication ‘Asian Development Outlook 2011'.
The main factors that would be responsible for economic growth moderation in 2011-12 would be crude oil prices and RBI's tightening of monetary policy in response to oil prices, Mr Hasan said.
“It's basically oil prices. Also the monetary and fiscal tightening, which is the right thing to do,” he said, adding that ADB expects the Government to continue with fiscal consolidation and RBI to raise policy rates by 50 basis points during 2011-12.
Monetary tightening would lead to a squeeze on aggregate demand, impacting economic growth. After reaching an estimated 9.2 per cent in 2010-11, average annual wholesale price inflation for 2011-12 and 2012-13 is expected to dip to 7.8 per cent and 6.5 per cent respectively as monetary policy remains tight, although elevated oil prices will remain a strong downside risk, the ADB has said.
The ADB also expects India's current account deficit to widen over the next two years, driven by a deteriorating trade deficit and moderate growth in invisibles. “For 2011-12, we expect current account deficit as a percentage of GDP to be 3.5 per cent,” Mr Hasan said.
He also felt that the Government will be in a position to keep fiscal deficit within the targeted level of 4.6 per cent of GDP in 2011-12 despite the expected higher oil prices.
On the recent devastation in certain parts of Japan due to Tsunami and earthquake, Mr Hasan said that he did not see any big implications on India from these developments.
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