New Delhi: India’s economic growth is set to accelerate in 2010-11 to an estimated 8.2%, although inflationary pressures pose a challenge to policymakers as the nation emerges from the slowdown caused by the global financial crisis, the Asian Development Bank (ADB) said.
Growth will be driven by strong advances in private consumption and investment in the next two years, said the Asian Development Outlook 2010 report released on Monday. Growth is projected at 8.5% in 2011-12.
The government expects the economy to grow 8.5% in 2010-11 and 9% by 2011-12. The economy is estimated to have grown 7.2% in the year ended 31 March after expanding 6.7% in the previous year.
Graphic: Yogesh Kumar / Mint
Manila-based ADB said its forecasts for the two years are based on six key assumptions: monetary and fiscal stimuli will be withdrawn gradually; domestic food supply will be comfortable because of a normal monsoon; international oil prices will average about $80 (Rs3,568) per barrel in 2010 and $85 in 2011; domestic fuel prices will be revised up; industrial economies will post a modest recovery in 2010 that will accelerate in 2011; and world trade will grow 7-8%.
“The outlook is for a return of high growth, although this will require continued apt handling of macroeconomic policies, and to sustain long-term growth it will be essential to address infrastructure bottlenecks and to reform agriculture,” ADB chief economist Jong-Wha Lee said.
Although inflationary pressures are expected to ease in early FY11 after the winter harvest, any increase in domestic fuel prices in line with the recommendations of the Kirit Parikh panel may fuel inflation.
ADB has forecast headline inflation at 5% in FY11 and 5.5% in FY12 as international prices of oil and non-oil commodities edge up.
Inflation based on wholesale prices rose to a 16-month high of 9.89% in February, exceeding the 8.5% estimate of the Reserve Bank of India (RBI) for March-end.
With an expected turnaround in global demand, India’s exports are projected to gain 16% in FY11 and 12% in FY12. This would bring exports in FY11 to near FY09 levels and in FY12 to just over the $200 billion target set in the government’s foreign trade policy, ADB said.
Imports are projected to grow 20% in FY11 and 18% in FY12 as gross domestic product (GDP) growth accelerates and global oil prices harden.
The widening trade deficit is expected to be partly offset by an increase in transfers from non-resident Indians. Overall, the current account deficit is expected to widen marginally to 2% of GDP by FY12.
Factors clouding the economic outlook include a possible surge in food prices following a poor monsoon or floods, as well as expectations for increased fuel prices this year and the next.
RBI has already started tightening monetary policy on the back of a strong recovery in factory output and spiralling inflation. RBI’s annual monetary policy announcement is due on 20 April.
ADB maintained that while a shift in monetary policy is unlikely to affect food prices, timely policy adjustments in the months ahead can help underpin a return to India’s past high growth rates while maintaining relative price stability.
“Too slow a removal of the fiscal and monetary stimulus support may lead to a quick uptick of inflation, while too rapid a removal may derail the recovery,” Lee said.