Economy

Costlier food, fuel will dent India's growth most in Asia, says ADB

Anil Sasi New Delhi | Updated on March 12, 2018

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Report based on inflation rising by 30 per cent





After four successive quarterly dips, the bad news for GDP growth is set to continue. Rising global food and oil prices are projected to dent India's growth story worst than other major Asian economies, such as China, Malaysia or Indonesia, in the coming year.

According to an Asian Development Bank (ADB) estimate, which assumes a combined 30 per cent increase in global food and oil prices in 2011, the resultant inflationary pressure could knock off well over three quarters of a percentage point from India's growth this year and another 1.25 percentage points in 2012. The projected hit on India's growth in 2012 is the highest in comparison to eight major Asian economies included in the study.

Bigger toll

Since August 2010, food prices have risen between 10 per cent and 35 per cent in various countries, while crude oil prices have increased by 45 per cent over the past year. The ADB estimates use the Oxford Economics Global Model to assess such impacts.

The model generates projections of key economic variables, based on the assumption that monetary authorities in the region will adopt a gradual tightening stance in the next two years as recovery takes firm hold. The key assumption is that global food and Brent crude oil prices rise by 30 per cent in 2011 and moderately fall in 2012.

For India, the projected food and oil price surge this year is expected to take a bigger toll on growth vis-à-vis China, both during 2011 and in 2012. The data point to a bigger hit on India's GDP next year on account of the global inflationary trend, as is the case with most major economies where Manila-based ADB has used the Oxford Economics model to project growth.

Other indicators, too, point to inflation eating into the growth story. The HSBC Purchasing Managers Index (PMI) released on Friday showed that both manufacturing and services are seeing signs of slowdown in May. PMI is compiled on the basis of a survey of 480 companies each from manufacturing and services sectors.

More poor

For 2011-12, the Reserve Bank of India has forecast a much lower-than-estimated 8 per cent GDP growth rate. The RBI has already raised its key rates a record eight times in the last 12 months in order to tame runaway inflation, the last one being a higher-than-expected 50 basis points hike on May 3. Analysts expect more rate hikes as and when the Government finally gets down to taking a decision on the Petroleum Ministry's proposal seeking hikes in diesel and cooking-gas prices.

According to the ADB data, Singapore is expected to suffer the biggest slowdown of about 1.5 percentage points in 2011, as the city state imports nearly all of its requirements, and hence is more vulnerable to global price movements. The Republic of Korea is an exception on account of the relatively low weight of food in its consumer price index.

The ADB estimates are buttressed by projections made by the Bangkok-based UN Economic and Social Commission for Asia and Pacific (ESCAP). In its latest Economic and Social Survey of Asia and the Pacific 2011, ESCAP has projected lower growth for India and China.

The survey has noted that an additional 42 million people could end up in poverty in the Asia-Pacific region in 2011, in addition to the 19 million already affected in 2010, due to rising food and oil prices.

These figures include those who would be prevented from climbing out of poverty and those who would be pushed into poverty by rising prices.

Published on June 04, 2011

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