The Asian Development Bank (ADB) has upgraded India’s GDP growth forecast to 8.5% for the current fiscal from 8.2% that was estimated earlier in April. The better performance, according to the report, is the result of robust private demand and sustained effects of stimulus policies of the government. The report has painted a very positive outlook for the largest democracy, saying India, along with China, is lifting the growth of the entire region. ADB’s forecast for China, where double-digit growth in the first half of 2010, is expected to moderate in the second half, remains elevated at 9.6%. The report forecasts healthy growth for the region at 8.2% in 2010, well above 5.4% recorded in 2009 and also above ADB’s earlier forecast of 7.5% made in April. “Strong export recovery, robust private demand, and the sustained effects of stimulus policies allowed the region to experience solid growth in the first half of 2010,” it said and added that this improved performance is broad-based and is projected to carry on for the rest of the year. The ADB report said the recovery has also been due to stronger domestic demand conditions as consumer and business confidence is on the rise. It praised RBI for its tightening of the monetary stance in a series of policy adjustments since January to stall overheating. However, fragility and uncertainty of recovery in the industrialised countries is “one big cloud hanging over the region’s otherwise sunny short-term horizon”, the report warned, pointing out the slowing down of the growth momentum in the second quarter. “The threat of another contraction in industrialised countries still remains, although the likelihood is small,” it said.
This risk from the industrialised countries is a major reason why ADB is maintaining its 2011 growth forecast at 7.3%, which marks a moderation from the 8.2% of 2010. Additional factors for the moderation are gradual withdrawal of the fiscal and monetary stimulus, and the end of the low-base effect due to the slump. It remains to be seen whether private domestic demand will be strong enough to support growth as fiscal and monetary policy attains normalcy.
Global rating agency Standard & Poor’s on Tuesday pegged India’s economic growth rate at 8.1% during 2010 on strong farm output, but warned that inflation will continue to remain a worry. The Indian economy has clocked a growth of 8.7% in the first half of the year. The rating agency said strong farm production will help drive economic recovery and may bring down food inflation.