UN report says domestic demand to cushion India from US recession

A recession in the US and a steep depreciation of the dollar will not have much impact on India, a United Nations Economic and Social Commission for Asia and the Pacific (Escap) report has said.

On most other economies of the region, like Taiwan, South Korea and Singapore, the impact would be harsh, the survey said in its annual report.

"China will remain resilient as strong domestic demand should cushion the external shock. In emerging Asia, India will feel the least impact," the study said.

Unlike other fast-growing East Asian countries, India's growth is fuelled largely by strong domestic demand and not overseas markets. Thus, a recession in the US is unlikely to derail the high economic growth logged by the country.

The survey said the country's gross domestic product would grow between 8.5 per cent and 9.5 per cent over the medium term, after growing 8.7 per cent in 2007.

"India could achieve and sustain 10 per cent growth by further improving the business environment and by developing its physical infrastructure and human capital," the survey notes.

The survey said the Indian economy was entering a new phase of high growth with forecasts of 9 per cent growth for 2008-2009 buoyed by investments, savings and increasing productive capacity.

But sustainability of high economic growth with moderate inflation would depend critically on fiscal prudence and high investment levels, it added.

Escap expects inflation for 2008 at 5 per cent. It said though inflation eased in 2007 to 5.5 per cent from 6.7 per cent a year earlier, further pressures could persist as international commodity prices, especially of oil and food, remained high.

"Underlying the price pressures were high food prices as well as demand-supply gaps in the domestic production of major food crops and oil seeds," it said.