India's growth forecast strong - ADB

India's economy will remain robust over the next two years although growth is expected to moderate in FY2011 as slower external demand and tighter fiscal and monetary policies weigh on expansion, and as high oil prices remain a threat.

ADB's flagship annual economic publication, Asian Development Outlook 2011 (ADO 2011), released today, says gross domestic product in the year to March 2012 (FY2011) will expand by 8.2 percent down from an estimated rate of 8.6 percent for FY 2010.

For FY2012, growth is expected to bounce back to 8.8 percent as investment and overall economic activity pick up and as planned reforms move forward.

Improved agricultural output, strong private consumption, robust investment, and a pickup in exports supported growth in FY 2010.

At the same time, continues inflationary pressure, a pullback in private investment and structural obstacles present challenges going forward.

Fiscal and monetary policies will also remain less accommodating than in the past as the Government follows its fiscal consolidation road map and the Reserve Bank of India acts to another inflation expectations.

"India's foremost development challenge is to achieve sustainable and inclusive growth," ADB's Chief Economist Changyong Rhee said.

To achieve these goals, the Government needs to tackle structural constraints including the poor agriculture supply chain and farm productivity. A positive start has been made with program to remove production and distribution bottlenecks for farm products and these steps should continue, the report says. Transforming manufacturing by reducing infrastructure bottlenecks and investment hurdles linked to labour regulations, land acquisition and environmental clearances should also be addressed.

"More robust manufacturing can absorb the young and growing workforce, including those shifting from farm work, with productive and well-paid jobs," Rhee said.

In the agriculture sector, output is expected to expand by 3 percent to 4 percent for FY2011 and FY2012 on the assumption that rainfall conditions are normal.

After reaching an estimated 9.2 percent in FY2010, average annual wholesale price inflation for FY2011 and FY2012 is expected to dip to 7.8 percent and 6.5 percent as monetary policy remains tight, although elevated oil prices will remain a strong downside risk. The current account deficit is likely to widen over the next two years, driven by a deteriorating trade deficit and moderate growth in invisibles.

In FY 2010, the rupee stayed relatively stable, appreciating only marginally against the US dollar.

Merchandise exports, though up on a year earlier, were offset by higher oil and non-oil imports, resulting in a widening of the trade deficit to an estimated $ 132 billion.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.

Established in 1966, it is owned by 67 members - 48 from the region. In 2010, ADB approvals, including co-financing, totalled $ 17.51 billion. Hong Kong, China (April 6, 2011)