New Delhi: The current economic slowdown may limit this year’s growth rate to 5.1%, lower than the government’s estimate of 6.5 to 7.5%, a report by the International Labour Organisation (ILO) said.
The study, titled ‘Responding to the Economic Crisis Coherent Policies for Growth, Employment and Decent Work in Asia and Pacific´ released by ILO, specifically assesses the impact of the economic slowdown on Asian economies.
According to broad economic assessments India’s domestic consumer markets are twice as large as its export market. While in China domestic consumption comprise just 80% of its exports.
Study held that the impact of the economic crisis on domestic investment will be a major determinant of how economies in the region weather the crisis, particularly in economies such as China, India, Pakistan and Bangladesh, where domestic investment comprises a larger relative share of the gross domestic product (GDP) than exports.
Along with manufacturing, the construction industry in many economies is expected to be hit by the crisis, as sharp downturns in construction activities has already been observed in China, Republic of Korea and Thailand.
Most Asian economies had entered the crisis on a “fairly solid footing” as far as macroeconomic conditions like debt position and foreign exchange reserves are concerned, the study stated.
It said: “The stress has to be on domestic labour intensive sectors. Government stimulus must ensure that these sectors are amply covered in their packages and that already approved infrastructure projects are not delayed.”
For India and Malaysia, the study said a higher fiscal deficit might spell trouble as it may lead to low government revenues and weakened fiscal positions.
Pointing out that a trend of reverse migration - from cities to villages - has already begun in India, China and Vietnam, the study held that this will lead to reduced wages and thus household income.
Recounting the positives about the Indian economy that countered the effects of the crisis to a large extent, ILO said India has a relatively ‘closed economy´.
Moreover, the impact of the crisis is restricted to urban areas as Indian cities are not closely integrated with the rural economy and also it has poverty alleviation programmes such as National Rural Employment Guarantee Scheme (NREGS), which worked in its favour.