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| India's GDP growth in FY12 just 6.8%: Report |
| BS Reporter / New Delhi Jan 19, 2012, 00:32 IST |
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 The World Bank said it expected the Indian economy to grow by just 6.8 per cent in the current financial year, significantly lower than the 7.25-7.75 per cent pegged by the finance ministry, as the economy faced high interest rates and there was “heightened uncertainty of policy reforms”.
The WB also cut its forecast for global economic growth rate to 2.5 per cent for calendar year 2012 from its earlier estimate of 3.7 per cent. It also cautioned against the persisting threat of a global financial shock, “similar in magnitude to the Lehman crisis”.
It asked developing countries to be ready for the “real” risk arising out of an escalation in the euro zone debt crisis. Developing countries will grow 5.4 per cent in 2012, down from a forecast of 6.2 per cent in June, the Bank said.
On India, the report said, “The weakening in activity reflects a significant moderation in domestic demand, led by a deceleration in investment activity that has faced headwinds of rising borrowing costs, high input prices, slowing global growth and heightened uncertainty. Delays and uncertainty surrounding the implementation of policy reforms have also hindered investment.”
It noted the hurdles in second generation economic reforms such as foreign direct investment in multi-brand retail, a goods and services tax and pension reforms.
Without naming India, the Bank’s ‘Global Economic Prospects’ report has said South Asia’s economies were also confronted with “domestic policy paralysis and uncertainty about regulatory reforms”.
A growth rate of 6.8 per cent would be equal to what the economy witnessed during the global financial crisis period of 2008-09.
But India had monetary and fiscal room at the time to stimulate the economy, much of which is not available now due to the seasonal nature of food inflation and a deteriorating fiscal deficit, analysts said.
The Bank also does not expect the Indian economy to witness faster expansion in 2012-13. It pegged the growth to be flat at 6.8 per cent.
Monetary stance
RBI’s tight monetary policy had already moderated economic growth to a nine-quarter low of 6.9 per cent in the second quarter of 2011-12, which with 7.7 per cent growth in April-June yielded 7.3 per cent growth in the first half. So, if the economy really grows by only 6.8 per cent this year, it means the rate in the second half would be slower than the first.
The finance ministry had hoped October-March would witness a slight recovery compared to April-September.
The report also said a slowing in India’s economic growth had dominated activity in South Asia. “The deceleration in regional economic growth in 2011 to a large extent stems from slowing growth in India, which accounts for about 80 per cent of South Asia’s GDP,” it said.
The report further said a deepening of the euro area crisis would lead to weaker exports, worker remittances and capital inflows to South Asia. Remittances are likely to fall in 2012 in some countries on account of slowdown in major economies, it noted.
On its world economic outlook, the Bank pegged economic expansion in high-income countries, including hte United States, France, Japan and Germany, at 1.4 per cent in 2012. It also estimated a contraction of 0.3 per cent in 17 countries that have the euro as currency.
The crisis in Europe, if worsened, could result in difficult times for emerging economies. Commodity prices could decline as much as 24 per cent. Global trade volumes could fall by more than seven per cent. Countries in Central Asia and Eastern Europe would be hit hardest, the bank said.
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