MANILA, SEPT 14: Asian Development Bank (ADB) today prescribed a seven per cent annual growth rate for India in the next two years but cautioned that this would not be possible without immediate implementation of second generation reforms. However, ADB has warned that the fiscal situation continues to be a cause for concern including burgeoning fiscal deficit, severity of revenue deficit in states, unproductive expenditure and unsustainable subsidies."India urgently needs to implement the second generation reforms to remove impediments to sustainable growth and raise the growth potential while ensuring prudent macro-economic management," the bank said in its latest Asian development outlook released here today, emphasising the need for a seven per cent growth for India this fiscal year as well as the next.The bank had put the GDP growth for the economy at six per cent in 1998-99 as against five per cent in the previous year. Noting the combined fiscal deficit for the centre and the state governments, itsaid the large borrowing requirements of the government threatened the macro-economic stability.This was perhaps the reason for finance Minister Yashwant Sinha's suggestion for a political consensus for bringing in statutory ceiling on borrowings. It, however, struck a positive note saying the three year industrial growth slowdown in the country was tapering off and that the economic growth was expected to improve in this as well as next financial year.The sustainability of the upturn, however, is "uncertain". For, despite the recovery, low overall productivity of the investment, excessive fragmentation of markets, shortage of investible funds, and the poor state of infrastructure "may pose significant risks to the economic recovery".The report points out that the growth impulses from the first generation of reforms may have ebbed and there is a danger that the economy could settle down to a lower growth trajectory of 5-6 per cent. "That is why India urgently needs to implement the second generationof reforms," ADB said.The fiscal situation, too, remains a "cause of concern, including the burgeoning fiscal deficit, the severity of revenue deficits in the states, unproductive expenditures, and unsustainable subsidies. ``The combined fiscal deficit of Central and state governments has reached unsustainable levels and the large borrowing requirements of the government are threatening macroeconomic stability," it said.The ADB report emphasises that agriculture will play a major role in the recovery. There are "encouraging signs" that industrial production is slowly picking up. It also took note of the rise in exports and increased production in steel and cement. Consumer durables and intermediate goods are doing very well, the report says.The macroeconomic environment is more stable due to the easing of inflationary pressures. The ADB report notes that "inflation fell continuously, with the wholesale price index growth declining to a record-low of less than 2 per cent by the end of June 1999 from 9per cent in November 1998."Further, the consumer price index for industrial workers "declined to a single digit in January 1999 after remaining in double digits for eight successive months since May 1998."In the external sector, too, there are "signs of recovery." Since November 1998, export growth and the net inflows of private portfolio investment have become positive, while the inflows of average monthly FDI have also been growing, the ADB report points out.
