Global crisis to pull down GDP growth to 5.8% in FY'10: IEG

The global financial crisis will hit India more this fiscal as the country's growth will be 5.8%, says economic think-tank Institute of Economic Growth (IEG).     

Government-estimated growth for 2008-09 is 7.1%. However, as per RBI estimates, GDP growth would be around 6 per cent in 2009-10."Based on our macroeconomic exercise, the impact of the global economic crisis on India is going to be higher in 2009-10 compared to the previous year," the IEG said in its latest report.     

The crisis will be seen in a fall in external demand and foreign capital outflow, it said.Unlike in other industrialised countries, in India this crisis initially affected the real sector by reducing external demand, it said, adding that after achieving robust growth for four consecutive years, export growth started showing negative trends since October 2008.     

Export sector slowdown is expected to continue for the rest of the year due to recession in most of the industrialised nations, it added. Swine flu is expected to further dampen international business, it said. These adverse effects have got transmitted to financial markets and created capital shortages, and, hence the decline in private investment, the IEG noted.     

However, the report said the macroeconomic policy response from the fiscal and monetary side is indeed expected to help the economy to recover from the sharp fall.     

But, as trends show, it would have a minimal impact as monetary policy transmission appears to take longer than anticipated due to unprecedented fall in business confidence, it added. The IEG report said GDP growth of 5.8%  is largely due to domestic factors like stimilus packages and robust agriculture, projected to grow at 3.5-4%.     

India is expected to receive near normal monsoon during the current year, which would help drive the targeted growth in agriculture.      According to global financial major Goldman Sachs, the Indian economy is likely to recover from a slowdown in the second half of this fiscal if a stable government is formed after the General Elections.