Special Correspondent

Industry and services will continue to suffer

‘Little room for further fiscal manoeuvre’

Government urged to review its tax policy

NEW DELHI: India’s gross domestic product (GDP) growth will drop to five per cent in 2009-10 owing to the uncertain global environment and little scope for further fiscal stimulus to boost the economy, Asian Development Bank (ADB) has said.

In its flagship annual publication ‘Asian Development Outlook 2009’ report released here on Tuesday by the bank’s South Asia Department Director Bruno Carrasco, the ADB sought to paint a grim picture for the new fiscal year starting April 1. “Industry and services will continue to suffer in the immediate uncertain environment...Prolonged recession in industrial countries will keep investor confidence low” and there would be “little room for further fiscal manoeuvre,” the report said.

Mr. Carrasco, however, pointed out that though there was limited space for fiscal stimulus, the Reserve Bank of India (RBI) could still take monetary steps if required. “That [limited fiscal space] leaves the remaining option at monetary easing if RBI feels that there is some degree of further scope of easing the policy rates without undermining inflation, strong reserves for liquidity... [The] RBI may wish to consider further measures,” he said.

For the following fiscal year, however, ADB’s ‘Outlook’ report projected a comparatively rosier scenario. India’s GDP growth rate, it said, should speed up in 2010-11 with recovery in the global economy and lower domestic interest rates spurring private investment and manufacturing. The fiscal stimulus measures that the government announced between December 2008 and February 2009 should allow the country’s growth to rise to 6.5 per cent in FY 2010, it said.

Inflation, the report said, should remain low in 2009-10 as well as in 2010-11 due to a favourable agricultural output, lower taxes on goods and weak domestic demand. The ADB ‘Outlook’ report, however, warned that there were downside risks and challenges ahead.

PTI reports from Washington and New Delhi:

WB projects 4% growth

The World Bank has scaled down India’s economic growth rate forecast to a dismal four per cent for 2009-10, down from an estimated 5.5 per cent for the fiscal that ends on Tuesday.

India, according to the World Bank’s Global Economic Prospects 2009 released ahead of the G-20 meeting in London, could witness some recovery in 2010-11 with growth likely to bounce to 7 per cent.

OECD projection

With emerging economies facing the possibility of “abrupt slowdowns”, India’s Gross Domestic Product growth rate could slip to as low as 4.3 per cent in 2009, said the Interim Economic Outlook released by Organisation for Economic Co-operation and Development (OECD).

Pointing out that the economic growth in India will ease to 4.3 per cent this year, the Outlook said that China is likely to grow by 6.3 per cent. However, the economies in Brazil and Russia are expected to decline by 0.3 and 5.6 per cent, respectively.