India expected to grow 4.7-6%, says UN report

India is expected to grow between 4.7 per cent and 6 per cent this calendar year because of the rapidly-worsening global financial conditions that will result in world economy not growing at all, United Nations’ economists have suggested.

Delivering a bleak assessment of “World Economic Situation and Prospects 2009”, the UN urged developing countries, including India, to implement appropriate “counter-cyclical policies” to stave off their economies from the global economic crisis, which spread from the US and other major industrialised countries.

The report called for stronger regulation of financial markets and institutions, adequate international liquidity provisioning, an overhaul of the international reserve system and a more inclusive and effective global economic government to prevent any future repetition.

It cautioned about the growing downside risks that include the adverse impact of the rising net indebtedness of the US — which is estimated at close to $3 trillion, a disorderly adjustment of global imbalances and a hard-landing of the dollar. If the downside risks were to come true, investors would embark on a “flight to safety” from dollar-denominated assets to other currencies, thereby pulling down both the US and the global economy, it said.

With interest rates falling to zero in major industrialised countries, the developing countries should also bring down their interest rates to enable easy credit flow to different productive sectors, it argued.

The European Central Bank today lowered its main benchmark lending rate by half a percentage point to 2 per cent to grapple with the worsening recession.

As major industrialised countries adopt stimulus measures on a war-footing, developing countries face a difficult situation with investors suddenly fleeing their economies, said Dr Heiner Flassbeck, the chief economist for the United Nations Conference on Trade and Development.

“International financial institutions, particularly capital-surplus countries, must provide special assistance to developing countries for adopting counter-cyclical policies,” he told reporters. “The best course is to ensure that the ODA (official development assistance) remains at its current level,” he said.

“Without coordinated international action,” he said, there was a danger of countries resorting to competitive policies on exchange rate and other fronts. “In fact, there should be a status quo on exchange rate policies by leading countries to stop attempts towards depreciation of their currencies,” he said.

“There is an urgent need for fiscal stimulus in an internationally coordinate fashion,” the report said, suggesting that efforts should be made to align fiscal stimulus packages with long-term sustainable development goals.

The report also called for reforms of liquidity provisioning and compensatory financial mechanisms, backed, among others, by better multilateral and regional pooling of national foreign exchange reserves, and avoiding onerous policy conditionality.

Efforts should be stepped towards a sustained reduction in the private sector debt, which now consists of a large pool of toxic assets, it said. It should be compensated by public debt, said Flassbeck, suggesting that “nobody is certain about the health of the global economy at this juncture”.

JPMorgan Chase’s Chief Executive Jamie Dimon said, “The worst of the economic situation is not yet behind us.”

“It looks as if it will continue to deteriorate for most of 2009,” he told Financial Times in an interview today.