India to continue facing tough times ahead: ADB

While Asian economies could experience a steady growth at 6.1 percent in 2014, the Asian Development Bank has said India will continue to struggle at 5.5 percent due to industrial slowdown

GN Bureau | April 18, 2014



Asian Development Bank

Amid growing anxiety over possible improvement in the global economy, the Asian economy is likely to witness a steady growth rate this fiscal, the Asian Development Bank (ADB) has forecasted.

According to a recent report by the bank the Asian Development Outlook (ADO) 2014,  the region will experience a slight increase in growth from 6.1 percent in 2013 to 6.2 percent this fiscal followed by 6.4 percent in the next fiscal.

"Moderating growth in the People’s Republic of China (PRC) as its economy adjusts to more balanced growth will offset to some extent the stronger demand expected from the industrial countries as their economies recover," the ADB report said.

The good news will soothe frayed nerves of investors waiting for the lull in demand from developed economies to disappear.

On India, the bank is positive about economic slowdown having bottomed out last year given the strong policy measures in place to address currency volatility and high current account deficit. However, it has warned that weaknesses - high levels of inflation, fiscal imbalances, low investment activity and infrastructural inefficiencies- continue to persist.

The bank has trimmed India’s growth forecast from its December estimate of 5.7 percent to 5.5 percent for this fiscal due to the industrial slowdown. "Without a systemic resolution to these, growth is forecast to pick up modestly," the report said.

Calling the government’s GDP growth estimate at 4.9 percent for 2013-2014 a "tad bit optimistic", the report said that in order to achieve that figure, the economy would have to grow by 5.5 percent in the last quarter of the fiscal. "The marginal pickup in headline GDP growth masks underlying weakness in the economy as it was due to stronger agriculture. Excluding agriculture, GDP growth slipped from 5 percent in 2012 to 4.9 percent in 2013," the report revealed.

The report further said that growth in the services sector had also taken a hit as it dropped below 7 percent. Most of the services sector including trade, hotels, and transport and communication services had experienced a slump, while the financial services industry remained surprisingly healthy at 11.2 percent. However, the bank has clarified that this was due to large inflows coming from Indian non-residents under a temporary foreign exchange swap window. "This appears to be largely a one-off event," the report said.

In addition, domestic consumption has also declined to 4.1 percent owing to a weak and volatile currency, persistent food inflation, continuously rising fuel prices and limited employment opportunities.

On the Indian economy’s prospects for improvement, the report has suggested that recovery would have to be led by improved investment and consumption. It, however, clarifies that the prospects “do not appear promising” in the present scenario. “Elevated inflation, a tight monetary stance, and a weak currency will continue to constrain spending. Further, fiscal austerity is likely to be an additional drag on growth,” the report added.

Read the full report here

 

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