In yet another projection pitching for easing of interest rates, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has estimated the Indian economy to grow at a slower pace of 5.9 per cent during the current fiscal as compared to an expansion of 6.5 per cent in 2011-12, mainly on account of “severe” monetary tightening by the country’s apex bank.
In its report titled ‘South and South-West Asia Development Report 2012-13’, the UN agency said: “India is projected to grow at 5.9 per cent in 2012-13 compared with 6.5 per cent in 2011-12.”
However, noting that there are reasons to believe the economy has turned the corner, it has projected a higher GDP (gross domestic product) growth of 6.8 per cent for 2013-14.
“Firstly, in September 2012, the government signalled its determination to pursue pending economic reforms including FDI [foreign direct investment] in multi-brand retail and civil aviation and the partial phasing out of fuel subsidies,” the report said while pointing out that the monsoon rainfall this year was not as weak as initially feared.
However, after notching up average growth rates of over 8 per cent in the previous three years, India’s economic growth has been decelerating since 2011 and the 6.5 per cent last fiscal (2011-12) was the lowest since 2002-03.
Arguing for an easing of interest rates, the report said: “The global economic slowdown provides only part of the explanation for this marked decline. A more important factor has been the severe monetary tightening by the RBI of policy rates in 13 episodes between March 2010 and December 2011 to curb inflationary expectations”.
In its report, ESCAP pointed out that high inflation as well as high interest rates adversely impacted private consumption growth, industrial investments and business sentiment. According to its chief economist Nagesh Kumar, ESCAP is “bullish on India's growth prospects” and the RBI should ease its monetary policy as the current inflationary trends are owing to supply-side issues and not demand-side problems. “It is time to loosen the policy,” he said.
Apart from India, the South and South-West Asia region comprises nine other countries, namely, Afghanistan, Bangladesh, Bhutan, Iran, the Maldives, Nepal, Pakistan, Sri Lanka and Turkey.
The UN agency has asked the sub-region to guard against the volatility that policies such as the third round of quantitative easing in the U.S. may bring in.
“These include rising inflation as well as financial and exchange rate instabilities,” the ESCAP report said.