The economy is turning around as core sectors show signs of recovery
After a spate of negative forecasts by a number of international agencies on the health of the country's economy, a United Nations report, on Thursday, projected a faster GDP (gross domestic product) growth rate for India at about 7.5 per cent this fiscal even as most of the Asia-Pacific economies are expected to see a much slower pace of expansion.
The projection, contained in the ‘Economic and social survey of Asia and the Pacific 2012', the flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), may be something to cheer about as its growth forecast is just a tad lower than the government's own estimates of a 7.6 per cent expansion for 2012-13.
Releasing the report at a function here, ESCAP Chief Economist Nagesh Kumar said: “The Indian economy's strong fundamentals, namely, high saving and investment rates and rapidly expanding labour force and middle-class, will ensure a steady economic performance with some volatility in GDP growth rates from year to year. There are indications that the economy is turning around as core sectors, including manufacturing, show signs of recovery. We expect it to expand by about 7.5 per cent in 2012-13.”
The report noted that for the Indian economy, the 2011-12 fiscal turned out to be a difficult one owing to the twin shocks of a global slowdown and the impact of a severe monetary tightening aimed at containing inflation. For the entire 2011, inflation remained a major concern and the Reserve Bank of India had to raise policy rates 13 times in 19 months, which impacted private consumption growth.
“This affected industrial investment. Yet, the Indian economy managed to grow at a robust rate of 6.9 per cent,” Dr. Kumar said.
Estimating that the overall inflation in India would remain at around 6.5 per cent in 2012, the ESCAP survey advocated increased supply of food items to contain the price rise.
“In line with increased prosperity, the food habits of consumers have been changing from cereals to proteins, fruits and vegetables, and to contain food inflation, supply of these items has to be enhanced,” it said.
The launch of the report here — wherein Chief Economic Advisor Kaushik Basu was the chief guest — was part of a series of simultaneous events organised across the Asia-Pacific to mark the release of the survey. Pointing out that the ESCAP survey, over the years, has been combining rigorous economic analysis with an in-depth social perspective in an integral fashion, Dr. Basu said: “In the current challenging global economic environment, the Asia-Pacific region and India, in particular, have a special responsibility and a major role to play, as a balancing force to offset risks of economic shocks from other regions, such as the Eurozone…”
Harping on the economic crises, such as the eurozone problem, the report pointed out that the weaknesses of major developed economies pose a major threat to growth in the Asia-Pacific region and this could lead to a lower expansion — from 7 per cent in 2011 to 6.5 per cent in 2012.
“The higher cost of capital and reduced demand for regional export, combined with loose monetary policies and trade protection measures of some advanced economies, contributes to this slowing of Asia-Pacific growth in 2012,” United Nations Under Secretary-General Noeleen Heyzer said.
The Asia-Pacific economies, she said, should try to maintain a growth-inflation balance, cope with capital flows and exchange rate volatility and create jobs to achieve high growth.