ADB downs India’s growth forecast to 5.6%

It is just not rating agencies like Fitch and Standard & Poor’s that are scaling down GDP growth projections of the Indian economy. Manila-based multilateral funding institution Asian Development Bank on Wednesday joined the group of global rating agencies and research firms in trimming India’s growth forecast for this year. In a report Asian Development Outlook 2012 Update: Services and Asia’s Future Growth, ADB said it expects the Indian economy to grow at 5.6% in FY2012. The latest projection is significantly lower than its earlier forecast of 7.0 per cent in April

“Much of the downward revision reflects the weak monsoon, which by allowing only negligible growth in agricultural GDP could shave 50–80 basis points from overall GDP growth. The delay in easing monetary policy will crimp industrial growth, and the persistent downturn in the industrial countries will do the same to services growth,” the report said.

Despite a slew of reforms announced by the government recently, ADB believes that continued weakness in the investment climate caused by fuel shortages and limited progress on reforms intended to alleviate infrastructure bottlenecks dampen growth prospects.

“For FY2013, the multilateral funding agency still feels that the economy could clock growth above 6.5 per cent. A normal monsoon, somewhat improved growth in the advanced economies, lower interest rates, and some improvement in investment climate will likely boost GDP growth in FY2013 to 6.7%, though less than the 7.5%...,” the report added. ADB said the interplay between changes in currency values and commodity prices will affect inflation.