ADB lowers 2013-14 growth projection to 6%

Shishir Sinha Updated - April 09, 2013 at 08:27 PM.

More reforms needed to return to high-growth path

Economist, ADB India Resident Mission, Abijit Sengupta (left) with Dy. Country Director, ADB India Resident Mission, Narhari Rao at a press conference, in New Delhi on Tuesday. - Photo: Ramesh Sharma

Multilateral lender Asian Development Bank (ADB) has lowered its growth projection for India for 2013-14 to six per cent from 6.5 per cent. It has said that structural reforms were key for India to return to a high growth path.

In its annual economic publication, ‘Asian Development Outlook 2013’, the Manila-based lender said GDP growth has the potential to reach 6.5 percent in 2014-15. It stressed that India must create a more favourable environment for investment if it is to sustain this higher rate. India’s economy is estimated to grow at five per cent in 2012-13, the lowest in a decade.

Giving reasons for lowering the growth projection in 2013-14, Abhijit Sen Gupta, an economist with the India Resident Mission of ADB, said that monetary easing was lagged while investment activities were affected.

The report said, “Improved global prospects, some easing of price pressures, and forward movement in resolving structural bottlenecks would allow growth to increase to 6.5 per cent in 2014-15.”

ADB Chief Economist Changyong Rhee felt that policymakers need to remove structural hurdles to faster growth. “While there have been some encouraging recent reforms, more is needed,” he said.

Risk factors

The agency also said that the forecasts are subject to risks like another bad monsoon, slow headway on fiscal consolidation and reforms, and continued sluggishness in the global economy. The average inflation is expected to decline slightly in 2013-14, it said.

“Inflation in 2013-14 is seen at 7.2 per cent, easing back to 6.8 per cent the following year as Government steps to raise diesel prices are completed,” the report said. The average inflation for the April-February period of 2012-13 has been 7.4 per cent.

Twin Deficits

The report further said the Union Government aims to cut the Budget deficit in 2013-14 through enhanced revenue collections and reduced subsidies. The Government has targeted a fiscal deficit of 4.8 per cent of the GDP for the current fiscal, against 5.2 per cent in 2012-13.

Cutting the fiscal deficit will help raise domestic savings and encourage private investment, ADB said. With the tax structure remaining largely the same, it said the reduction in deficit would be heavily dependent on a pickup in growth and continued revisions of diesel prices.

Terming rising current account deficit (CAD) a concern, the report said reversing this trend will require removing constraints which are deterring investment and undermining exports and domestic growth.

D.K. Pant, Chief Economist with Indian Ratings, said, “ADB’s latest projection is in line with India Ratings estimate of 6.1 per cent. We need to understand that monetary easing will take time to revive demand. At the same time global situation is still uncertain.”

On the other hand, D.K. Joshi, Chief Economist with Crisil, said that “if investment revival is yet to take place, then there is some uncertainty on election. CAD is making the economy vulnerable. Similarly, private consumption at a 12-year low.”

All these are slowing the growth momentum, said Joshi. Even Crisil’s projection of 6.4 per cent is under revision, he added.

shishir.sinha@thehindu.co.in

Published on April 9, 2013 05:23