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India should see a moderate uptick in economic growth in 2012-13 and 2013-14 as global conditions stabilise, a new Asian Development Bank (ADB) report has said.
The gross domestic product (GDP) growth should edge up to 7 per cent in 2012-13, the Manila-headquartered development bank said in its annual flagship economic publication, Asian Development Outlook 2012, released on Wednesday.
The ADB's estimate, however, is much lower than its September forecast of 8.3 per cent for 2012-13. It is also lower than the Government's forecast of 7.6 per cent for the current fiscal.
For 2013-14, ADB has pegged the economic growth estimate at 7.5 per cent.
The report said India's return to the very strong performance of recent years hinges on moving the reform agenda forward, especially addressing issues constraining investments.
The Indian economy recorded 6.9 per cent growth in 2011-12, according to advance estimates by the Central Statistics Office. This is lower than the 8.4 per cent growth recorded in 2010-11.
Inflation rate
The ADB report expects the average inflation rate at 7 per cent in 2012-13 and 6.5 per cent the following year. Inflation eased late in the year after 13 consecutive policy rate hikes by the Reserve Bank of India.
The dip in inflation is expected to continue on the expectations of a normal monsoon and more suitable global commodity prices.
Foreign investment
Foreign direct investment (FDI) will increase only modestly, says the report. However, external commercial borrowings are set to remain healthy given the interest rate differential with advanced economies. The current account deficit is expected to be financed by capital flows.
The report said certain labour law reforms could attract FDI in labour-intensive manufacturing.
Weak infrastructure, especially in transport, power, education and training, was also reducing India's attractiveness to FDI. Inconsistent policy-making could also dampen investor confidence, the report said.
Export growth
Moderation of growth in the advanced economies would adversely impact exports as well as receipts on account of software and business services, the report said.
Export growth is forecast to slip to 14 per cent in 2012-13. Remittances are expected to show strong growth, as banks are now free to set rates in response to market forces.
Current account deficit is also expected to improve marginally to 3.3 per cent of GDP in 2012-13, the report said.
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