The Asian Development Bank (ADB) has, in its latest development outlook report, scaled down the growth forecasts for India in the current year as also in 2012.
The ADB had forecast a growth rate of 8.2 per cent in April this year, which has now been brought down to 7.9 per cent, while the growth projection for 2012 has been trimmed to 8.3 per cent from 8.8 per cent made in April.
The Asian Development Outlook 2011, released on Wednesday, says that weaker industrial development activity and investment, along with persistent inflationary pressures, have affected the growth prospects.
The report has also raised the inflation forecast to 8.5 per cent in the current year, from 7.8 per cent seen in April, in the context of food and fuel prices still remaining high.
In fact, India is not alone in going though a phase of slowdown in growth with the report cutting down its forecast for the developing countries in Asia in 2011 to 7.5 per cent from 7.8 per cent seen in April. The projection for 2012 has also been lowered to 7.5 per cent to 7.7 per cent. The muted demand from the US and the European countries continues to cast cloud over the region with the growth in exports coming down substantially in the second quarter of the current year in the leading economies.
China
In the case of China, the growth estimate for the current year has been lowered to 9.3 per cent from 9.6 per cent projected in April. The forecast for 2012 has also been brought down slightly to 9.1 per cent.
The ADB report notes that higher interest rates, slumping investment and escalating input costs will keep India's industrial output under pressure in the near term, while private and public consumption will be dampened by rising capital costs and the Government's ongoing efforts to reduce fiscal deficit. At the same time, the services sector and exports will remain key drivers of growth, although the outlook for trade remains clouded by the uncertainties in the US, Europe and other industrialised countries.
The report quotes Mr Changyong Rhee, Chief Economist of ADB, as saying that ‘recovery in investment is critical for the economy to return to a high growth path and there are signs of policy momentum to deal with long-standing issues that have weakened the investment environment.
These initiatives will help bolster activity and growth, although any lift they provide will be marginal through 2012'.