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ADB lowers India's growth projection to 6.5%
The Asian Development Bank (ADB) on Thursday lowered the growth forecast for India to 6.5 per cent for the current fiscal, from the earlier 7 per cent projection, on the back of subdued demand and high inflation.
"India's economy is now expected to grow by 6.5 per cent in 2012, down from the previous forecast of 7 per cent. India's outlook is clouded by a combination of high inflation and poor demand, both externally and internally," the ADB said in its 'Outlook Supplement' report.
It said that the weakness in the economy was reflected in declining business confidence, slow credit growth and subdued sales of automobile sector.
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ADB lowers India's growth projection to 6.5%
"With persistently high inflation, monetary policy has little room to counter the slowdown in economic growth...high inflation and trade deficit make it difficult to ease monetary policy to stimulate demand," ADB said.
The Reserve Bank is scheduled to announce its quarterly review of monetary policy on July 31.
Wholesale inflation was 7.55 per cent in May. At the retail level, the Consumer Price Index (CPI) inflation for the same month was 10.36 per cent.
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ADB lowers India's growth projection to 6.5%
The Manila-based multilateral lender has also lowered the India's growth forecast for 2013 to 7.3 per cent, from the 7.5 per cent projection made in April.
ADB has cut its growth forecasts for developing Asia to 6.6 per cent for 2012 citing economic problems in the Eurozone and its impact on global demand. It had projected a 6.9 per cent growth for the region earlier.
It further said that the decline in growth forecast for developing Asia was mainly on account of lower growth in India and China.
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ADB lowers India's growth projection to 6.5%
Moreover, ADB added, the global economic worries were also getting reflected in the plunge in business investment, and there could be slowing of growth in the second half of 2012.
According to official projections, Indian economy is expected to grow at 7.6 per cent (+/- 0.25 per cent) in the current fiscal.
While the RBI left its key policy rates unchanged in its last policy review in June, European Central Bank and People's Bank of China slashed their respective policy rate earlier this month to boost growth.
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ADB lowers India's growth projection to 6.5%
The ECB reduced its main interest rate to a record low of 0.75 per cent and its deposit rate to zero to help tackle the euro zone crisis.
"Global economic growth remains sluggish, with rising concern that emerging economies are increasingly vulnerable to weak economic prospects in the United States and euro area," ADB said, while reducing the growth outlook for industrialized economies to 1 per cent, from 1.1 per cent earlier.