UN lowers India growth forecast to 4.8% for 2013

United Nations has lowered India's economic growth forecast for 2013 to 4.8% while warning that emerging markets should be prepared to deal with the impact of US Federal Reserve's quantitative easing programme.

India's economy is forecast to grow at 4.8% in 2013, down 1.3% from its earlier projection, the UN's World Economic Situation and Prospects 2014 report said.

Similarly, it has lowered the growth projection for 2014 to 5.3%, down 1.2% from earlier forecast. The UN sees India to grow by 5.7% in 2015.

"In China, growth was expected to maintain a pace of about 7.5% over the next few years, while India's economy was forecast to grow by more than 5%," the UN's World Economic Situation and Prospects 2014 report said.

 Growth in South Asia remains lacklustre as a combination of internal and external factors hamper activity, particularly in the region's largest economies, such as India, it said.

India's growth in the first half of 2013-14 stood at 4.6%. To achieve 5% growth in this financial year, the economy has to expand by 5.4% in the second half.

Shamshad Akhtar, UN's Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs, said much of the world's economic weakness stemmed from developed economies which continued to struggle, including the euro area and the US.

Capital flows declined for many developing countries and associated volatility generated macroeconomic complications, she said, adding volatility of flows, particularly with regard to the US Fed Res's tapering of the quantitative easing programme, had strong consequences.

"The potential for substantial downside risks of the premature tapering of quantitative easing could impact global growth. Emerging markets should be prepared to deal with the impact of global outflows as quantitative easing was (being) tightened," she said.

The US Federal Reserve last night announced that it would reduce the monthly bond purchases to $75 billion from the existing level of $85 billion from January.

Meanwhile, Finance Minister P Chidambaram said India is better prepared to deal with the situation arising out of a cut in US bond purchases and that markets have already factored in the impact of such a move.

He said this is a mild reduction and the US Fed has not announced any sequential reduction.

"The government is of the view that the markets had already factored in the US Federal Reserve's decisions and therefore is not likely to be surprised by these moderate changes," he said in a statement.

Further, the UN report said the global economy was expected to grow at a pace of 3% in 2014.

Pingfan Hong, Chief of the Global Economic Monitoring Unit, Department of Economic and Social Affairs, said the world economy in 2013 was unable to meet even the most modest projections.