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The Asian Development Bank (ADB) has scaled down its estimate of India’s economic growth in 2014-15 from 5.7 per cent earlier to 5.5 per cent. For, it has said, industrial growth does not, so far, show it will rise to the extent expected earlier. The projection was same as the mean of RBI's range of growth projection — 5-6 per — for 2014-15.
The Manila-based institution, in its report which was issued on Tuesday, wanted the central government to undertake structural reforms, boost manufacturing and revive investment, if the economy is to grow at its potential rate.
“Industrial growth, particularly manufacturing, remained weaker than what we had expected at the time of the previous report,” ADB India's senior economics officer, Abhijit Sen Gupta, told journalists. The earlier report was in October 2013.
After that, Index of Industrial Production (II) data has come for five months and three of these — October, November and December — showed a contraction in output. In January, the IIP recovered a bit, to show a 0.1 per cent rise. For the first 10 months of 2013-14 (April 1-January 31), it remained at the previous year's level.
In its April 2013 outlook, ADB had projected India's economy to grow 6.5 per cent in 2014-15. “Continuing contraction in manufacturing output was a new low. Continuing contraction in the output of capital goods and consumer durables reflects very weak investment and consumer demand,” the report said.
Manufacturing output fell 0.7 per cent in the first 10 months of FY14 against 2.7 per cent in the corresponding period of FY13. Consumer durable goods output declined 8.3 per cent against a decrease of 0.7 per cent during the earlier period. There was not even a month when consumer durables showed a rise.
Officially, India is projected to have expanded 4.9 per cent in 2013-14, higher than the 4.5 per cent of 2012-13, ADB has said the growth masks underlying weakness in the economy, as it was due to a stronger agriculture. Excluding agriculture, the growth in gross domestic product (GDP) slipped from five per cent in 2012-13 to 4.9 per cent in 2013-14, says the latest report.
ADB wants the government to clear projects quickly and boost manufacturing, beside structural reforms. For 2015-16, it projects growth at six per cent. Taking the projections at face value, the economy will grow 5.2 per cent annually in the first four years of the 12th five-year plan (2012-13 to 2016-17). This means the Planning Commission's original target of eight per cent average growth a year for the plan period will not be met. After the next government comes in and the Commission is restructured, the growth rate estimate is set to be revised downwards.
The Bank said though the Cabinet Committee on Investment had cleared projects worth a combined $89 billion or 4.8 per cent of GDP, most were government ones. Investments in general have to be revived. Rana Hasan, principal economist with ADB India, said one of India's pressing policy challenges was to create significantly more productive and well-paying jobs. For that, manufacturing will have to play a key role. "Unfortunately, manufacturers in India do not perform close to their tremendous potential. For many years now, the sector has contributed around 15 per cent of GDP and 12 per cent of employment," he said. On the other hand, manufacturing in China, Malaysia, Thailand and Vietnam accounts for close to 25 per cent of GDP, he pointed out. This is precisely the target of the National Manufacturing Policy, to be achieved by 2025.
ADB says it finds the fiscal deficit target at no more than 4.1 per cent of GDP for 2014-15, set by Finance Minister P Chidambaram, to be optimistic. This was projected to be reined in at 4.6 per cent of GDP for 2013-14 in the revised estimate (RE), against the earlier Budget estimate of 4.8 per cent. However, it had already overshot the RE by 14 per cent by February.
The Bank has also projected the current account deficit (CAD) to be 2.2 per cent of GDP in 2013-14, against 4.8 per cent in 2012-13, and to then grow to 2.5 per cent in the current financial year (which began on Tuesday). Sen Gupta said it would be interesting to see how CAD behaved once the curbs on gold import were relaxed.
