ADB raises India’s growth forecasts

An increase in public spending, a quicker than expected return of capital inflows, stronger industrial production, and signs of improved business confidence will lift economic growth to 6% in India this year, up from an earlier estimate of 5%, said the Asian Development Bank (ADB). The Asian Development Outlook 2009 Update (ADO Update) said that while agricultural output for 2009 is expected to remain stunted and exports weak, adroit economic management in the form of fiscal stimulus packages and accommodative monetary policy has minimized damage from the global financial crisis and is supporting a relatively strong economic expansion again. The report forecasts growth of 7% for 2010, also an upward revision from the 6.5% projection in March.

"The Government's strong fiscal stimulus, complementing the Reserve Bank of India's (RBI) aggressive monetary policy easing, has successfully brought last year’s economic slowdown to an end," said ADB Chief Economist Jong-Wha Lee.

Growth in the first quarter of 2009 reached 6.1%, a modest rise on the previous two quarters, with the upturn reflecting a recovery in industrial growth to 5% from less than 2% in the previous six months. The company net profits grew strongly and ECBs rose 19% in June, the highest expansion since Sept. 2008. Weak agricultural output in the second and third quarter is likely to weigh on growth, although the report said a rebound is expected in the final quarter.

The report noted that growth for 2009 will continue to be driven by Government expenditure, with the combination of countercyclical fiscal policies and renewed investor confidence expected to sustain an expansion in private consumption and investment. The impact of difficult weather conditions on rural incomes and consumption will be partly offset by budgetary programs to aid households in the rural areas and possible supplementary support, the ADB said.