ADB slashes India’s GDP forecast to 5.6% for FY12

The twin factors- dwindling global demand and delayed monsoon that have exacerbated India’s recent economic slowdown, have now led to reduced growth forecasts by the Asian Development Bank (ADB) for fiscal years 2012 and 2013. In its  report “Asian Development Outlook 2012 Update”, ADB lowering its projection, has pegged India’s gross domestic product to grow by 5.6% in FY2012 (which ends March 2013) and 6.7% in FY2013, from earlier projections of 7.0% and 7.5%, respectively, for the two years. Besides this, the report has also raised projected inflation to 8.2% in FY2012 (from 7.0%) on the back of higher domestic food and fuel prices.

Additionally, the report has blamed tight monetary policy to counter persistently high inflation and a high deficit for having left little room for policy to stimulate growth. Further, the report has mainly highlighted ongoing sovereign debt crisis in the euro area and looming fiscal cliff in the US to have disastrous spillovers to the rest of the world, particularly developing Asia.

However, the Manila-based bank, in its reports, has suggested the region to start reversing this trend by improving investment climate and expediting reforms, which off lately seems to be a top priority for the government, has made some headway in addressing these challenges recently. In its latest reform drive, a long needed but politically controversial decision to permit foreign direct investment (FDI) in multi-brand retail stores has been cleared, diesel prices have been hiked by 12%, use of subsidized liquefied petroleum gas has been capped to contain the fiscal deficit and lastly a controversial proposal to review tax avoidance on foreign investments has been deferred by three years.