With the global "economic winter" being far from over, the United Nations Conference on Trade and Development (UNCTAD) today projected much lower growth of 5 per cent for India in 2009 against official and RBI forecasts of above 6 per cent in the current fiscal.
The UNCTAD, in its Trade and Development Report,2009, expects Indian economy to expand by five per cent in 2009.
The economy grew by 6.7 per cent in the financial year 2008-09. In the first quarter of the 2009-10 fiscal, the gross domestic product (GDO) expanded at 6.1 per cent and both the the Reserve Bank and the Prime Minister's Economic Advisory Council expect GDP to be above six per cent for 2009-10.
However, despite projecting a lower growth rate, the UNCTAD report lists India as the second fastest growing economy after China, in the backdrop of the global economy set to shrink by 2.7 per cent in 2009.
"The economic winter is far from over tumbling profits in the real economy, previous over-investment in real estate and rising unemployment will continue to constrain private consumption and investment for the foreseeable future," it said.
"Even economies that will grow this year, such as those of China and India, are slowing significantly compared to previous years," it said, adding crisis is "unprecedented in its depth and breadth" leaving virtually no country unscathed.
The report further said improvement of certain financial indicators from their lows reached in the first quarter of 2009, falling interest rate spreads on emerging-market debt and corporate bonds and the rebound in securities and commodity prices were seen as "green shoots" of economic recovery.
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However, "the likelihood of a recovery in the major developed countries that would be strong enough to bring the world economy back to its pre-crisis growth path in the coming years is quite low," the report said.
The UN body said neither consumption nor investment growth can be expected to revive significantly anytime soon due to low capacity utilization and rising unemployment.
UNCTAD has said the growth rate of developed nations is expected to contract by 4.1 per cent in 2009, while for developing countries, it is is likely to decelerate from 5.4 per cent in 2008 to 1.3 per cent in 2009, implying a reduction of average per capital income.
China and India, however, have resisted recessionary forces better than others because their domestic markets play a more important role in keeping the demand from falling sharply.
The report said large injections of central bank money and the sharply rising deficits in many countries have prompted concerns of an inflationary revival. However, it is deflation and not inflation that is the real danger."To halt the contraction of GDP and reduce the risk of deflation, governments and central banks need to maintain, or even further strengthen, the expansionary stance of monetary and fiscal policies," UNCTAD said.
Against this background, it is predicted that global GDP growth may turn positive again in 2010, but it is unlikely to exceed 1.6 per cent.
The report pitches for reform of the international monetary and financial system aimed at reducing the scope for gains from currency speculation and at avoiding large trade imbalances.
"Greater international stability requires an overhaul of the entire monetary and financial system," the report said.
UNCTAD argues that a new monetary system based on multilaterally agreed principles and rules is needed for macroeconomic stability in the globalised economy and for a level playing field for international trade.