The World Bank today said the Indian economy may grow at more than the projected level of 8-9 per cent in the next two years, but high interest rates, the rising rupee and lower demand from developed nations could come in the way.
"India's recovery after the slowdown is well under way. Growth is projected to recover to 8–9 per cent in the next two years. The recovery of Indian GDP could be even faster than what is projected," according to the World Bank South Asia Economic Update, released today.
The multilateral lending agency noted that rising interest rates, rupee appreciation and continued low growth in high-income nations could pose hurdles to the recovery.
India's recovery could also be impacted by volatility in capital inflows and high inflation.
"Risks to the (economic) outlook come from volatility in capital inflows, global recovery and inflation shocks," it noted.
On the back of a strong performance by the manufacturing sector, the Indian economy expanded by 8.6 per cent in the first three months of 2010.
India measures its economic growth on a fiscal year basis, rather than by calendar year as is done by the World Bank.
The country's economy grew by 7.4 per cent in 2009-10, compared to 6.7 per cent expansion in the previous fiscal, when it came under the ripple effect of the global financial meltdown.
Before 2008-09, the Indian economy grew by nine per cent in the previous three financial years. The government expects that the nine per cent growth rate will only resume in 2011-12. In the current fiscal, it projected that the economy will grow by 8.5 per cent.
With inflation still above 9.5 per cent in April, the RBI may further tighten money supply, which may result in higher interest rates.
Meanwhile, the World Bank has estimated that the South Asian economy will grow by around 7 per cent this year and by 8 per cent in 2011.
"South Asia is poised to grow by about 7 per cent in 2010 and nearly 8 per cent in 2011, thanks to the strong recovery in India, good performance in Bangladesh, post-conflict bounce in Sri Lanka, recovery in Pakistan and turnarounds in other countries, including Afghanistan, Bhutan and Maldives," the report said.
