Indian economy set to accelerate in 2010: ADB

 India's economic rebound from the global financial crisis will gain pace in 2010, but inflationary pressures will require special attention, the Asian Development Bank (ADB) said Tuesday.

India's economy will grow by 8.2 percent in 2010, the Manila-based bank said in its flagship annual economic publication, Asian Development Outlook 2010.

"The outlook is for a return of high growth," said ADB chief economist Jong-Wha Lee, releasing the report.

This, however, will require "apt handling of macroeconomic policies, and to sustain long-term growth it will be essential to address infrastructure bottlenecks and to reform agriculture."

Swift fiscal and monetary stimulus, an improving global environment, the return of investor risk appetite and big capital inflows combined to help the economy grow a government-estimated 7.2 percent in 2009, up from 6.7 percent in 2008.

India's government now is gradually winding back expansionary fiscal and monetary policies as the rebound gains traction and inflation threatens to breach 10 percent.

"As recovery becomes stronger, authorities need to watch out for rising inflation pressures in consumer and asset prices, and implement regulatory intervention as needed," Lee said.

The central bank raised short-term borrowing rates by a quarter point last month and is expected to hike them by a similar amount next week at its next policy-setting meeting.

While trade flows have yet to return to levels seen before the global financial crisis, higher private consumption and investment should underpin growth over the next two years, the report says.

The ADB estimated growth at 8.7 percent in 2011, slightly below the Indian government's forecast of nine percent -- the level seen before the global economy went into a tailspin.

But clouding India's recovery outlook is a surge in food prices following a poor summer monsoon last year and floods, as well as expectations of increased fuel prices this year and next, the bank said.

In addition, a weak agriculture sector and infrastructure bottlenecks remain hindrances to longer-term growth. Overall inflation for 2010 is seen at five percent, rising to 5.5 percent in 2011.

To counter rising food prices and to boost farm output, which shrank around 0.2 percent in 2009, the government will need to boost farm gate prices and address distribution constraints, the bank said.

More government spending on improving India's battered infrastructure is also required as well as more public-private investment partnerships to get such projects started, the bank advised.

India's dilapidated ports, roads, airports and other facilities are widely seen as big hurdles to growth.

source AFP

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