India to buck slowdown in Asia: Escap

Despite a projected slowdown to 6.2 per cent in the economic growth rate of Asia-Pacific countries for 2005, India is expected to buck the trend and grow at 7.2 per cent, according to Escap's Economic and Social Survey of Asia and the Pacific 2005.

"Assuming no major internal or external shocks and no political instability, India should be able to sustain real GDP growth rates in the range of 7-7.5 per cent in 2005-07," the report said adding that growth had become more broad-based in India.

The economy, it said,would be supported by a 2-4 per cent growth in agriculture coupled with a 7.5-8 per cent growth in industry and 8.5 per cent in services.

The report noted that the GDP growth rate in India had declined from 8.5 per cent in 2003 to 6.9 per cent in 2004 due to the slow growth in agriculture caused by poor weather conditions. However, industrial growth accelerated from 6.6 per cent in 2003 to 7.8 per cent in 2004 because of a stronger private consumption and investment.

The projected inflation for India for 2005-06 at 4 per cent is marginally higher than the 3.8 per cent during 2004-05.

"Higher prices of petroleum products, minerals and metals contributed to the increase in inflation as a result of cost-push factors driven by international prices," the report said.

"In 2005, should the global economy experience a loss of momentum, exports from the sub-region, too, will be adversely affected. The tsunami will lower the growth of 2005 in some countries quite substantially but its overall effect on the region is likely to be small," it said in its prospects for South Asia.

Besides the performance of the US economy, the prospects for 2005 will be conditioned by the success of authorities in China achieving a "soft" landing, it said adding that continuing high oil prices, a falling dollar and easing of growth in world trade were some of the near-term challenges for the region.

The report noted that China, India and Pakistan, which have well developed indigenous textile sectors would be main beneficiaries of the quota-free regime. However, smaller economies like Bangladesh, Nepal and Sri Lanka would face major challenges if apparel prices decreased further, the report said.

India's stock of foreign exchange reserves which stood at $131 billion in December 2004 may increase to $133 billion by the end of March 2005, it said adding that the real effective exchange rate of the rupee depreciated 2.4 per cent in 2002-03 but appreciated in 2004.

It forecast an increase in the flow of foreign direct investment (FDI) until 2007, with China enhancing its role as a significant provider and a top recipient of FDI. A number of other developing countries like India, Malaysia and Singapore, had emerged as providers of FDI.