Economy to grow at 7.4%: ADB

Buoyant outlook based on estimated 10.2% growth rate of industrial sector

The Indian economy is expected to grow at 7.4 per cent in the current fiscal and 7.6 per cent in 2005-06, according to the Asian Development Bank (ADB).

The Asian Development Outlook of the bank that forecasts economic trends in the region, says that the buoyant outlook is based on an estimated 10.2 per cent growth rate of the industrial sector and the structural changes coming about in the economy. The GDP growth rate will be second only to China in Asia, which is estimated to log 8.2 per cent in 2005-06.

However the report adds a rider saying, "If the new government that takes over in May 2004 fails to come to grips with reform issues, this will erode business confidence and undermine investment, resulting in reduced growth".

But releasing the report, chief economist of the Bank in India, Sudipto Mundle said a change of government will not affect the country's reform programme. Referring to the lower emphasis on disinvestment made by Congress, Country Director of the Bank, Louis De Jonghe said they believed that such differing emphasis would not alter the big picture.

Along with the continued high level of combined fiscal deficit of the Centre and states, estimated at 10 per cent in 2004-05, the other pressure points in the economy was the accentuation of disparities in the economic performance of the states, the report says.

Mundle also said a major cause for worry was the less than one per cent growth rate of employment through the nineties. He said despite an impressive rise in output in the services sector, it has not added to employment adequately.

Mundle added that there was little possibility of the rate of interest in the economy softening further, though it was strange that the prime lending rates were still high compared to the real rates of interest.

The Asian Development Outlook has based its projection for the country, assuming a growth rate of 3 per cent for agriculture and between 8 to 9 per cent for services in the two fiscal years.

The chief economist, said the country was on the cusp of an industrial upturn based on a long term business cycle in the sector. He said this will more than compensate for any sluggish growth rate of agriculture.

Mundle also said the growth in services was not dependant on a single component, like increased spending by government and social agencies. He said therefore the high growth rate observed for the sector would continue.