New Delhi: A quarterly survey of professional forecasters conducted by the Reserve Bank of India (RBI) showed the outlook on India’s economic growth over the next decade has worsened recently. The economy is forecast to grow at 7.5% over a 10-year period.
The results of the survey of 17 forecasters, which were put up on RBI website on Thursday, showed that in the space of three months, forecasters have marked down their 10-year gross domestic product (GDP) growth from 8.8% to 7.5%. The survey does not reflect RBI’s views.
Some economists, however, are sceptical about the reliability of a 10-year forecast. Saumitra Chaudhuri, an economist on the Prime Minister’s Economic Advisory Council, said 10-year forecasts are largely influenced by the short-term mood.
“It gives a sense of the direction about the herd. Most people don’t think beyond two-three years and extrapolate that to 10 years.”
D.K. Joshi, director and principal economist at credit rating agency Crisil Ltd, seconded Chaudhuri’s views. “That’s a reflection of worsening growth scenario. The current scenario shapes your future expectations.”
“I don’t think too much rigour can get into this scenario-building exercise,” Joshi said.
Manoj Vohra, director of research at the Economist Intelligence Unit (EIU), however, said the survey’s results reflected a dose of realism about what is sustainable in India.
“We are seeing more realism now. We have held a view since September last year that growth rates are going to be much lower over the next 5-10 years,” he said.
EIU does not have a 10-year forecast. However, over a five-year period, Vohra said: “I don’t see India (growth rate) exceeding 7%.”
RBI’s survey showed the five-year forecast for real GDP to be 7%, down from 7.7% forecast three months ago.
According to Vohra, factors facilitating growth have taken a turn for worse recently, which would lead to lower “sustainable” growth rates.
Two factors that would adversely impact growth are imbalances created on account of the ballooning fiscal deficit and lower access to overseas capital, he said.
Another factor that will have an adverse impact on growth is the move to raise protectionist barriers across countries, which would slow global trade.
“This is one of the worst periods, it will lead to protectionism. The pace of globalization will slow,” Crisil’s Joshi said, talking about the environment for growth.
RBI’s survey showed forecasters have marked down growth in exports in 2008-09 to 7.8%, from 12% in the previous survey.
In line with a slowdown in economic activity, the overall balance of payments deficit has been reduced to $22.5 billion (Rs1.12 trillion today) in 2008-09, from $30.8 billion forecast three months ago.
Even in the case of near-term projection, growth has been marked down by professional forecasters over the last three months.
The real GDP growth rate for 2008-09 was marked down to 6.6%, from 6.8% in the last quarterly survey. The forecast for 2009-10 has been revised to 5.7%, from the 6% forecast in the last survey.
Other than growth, the RBI survey also came out with five-year and 10-year forecasts for inflation. Over the next five years, inflation—as measured by the Wholesale Price Index (WPI)—is expected to be 5%, unchanged from the last survey.
Inflation based on WPI and Consumer Price Index (industrial workers) over the next 10 years is expected to be 4.5% and 5%, respectively.