India’s GDP to take a hit following war, SARS

The Economic & Social Commission for Asia & the Pacific (ESCAP) of the United Nations has said that growth in the Asia-Pacific region will b...

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The Economic & Social Commission for Asia & the Pacific (ESCAP) of the United Nations has said that growth in the Asia-Pacific region will be conditioned by the aftermath of Iraq war, impact of severely acute respiratory syndrome (SARS) and growth in the US, Japan and the EU.

ESCAP 2003 was presented by Nagesh Kumar, director-general of the Research & Information System for the non-aligned & other developing countries. It has pegged growth in developing countries in the Asia-Pacific at 5 per cent for calender year 2003.

NCAER forecasts 5-5.6% growth

New Delhi: National Council of Applied Economic Research (NCAER) expects the GDP to grow by 5 to 5.6 per cent in the current fiscal. The growth rate will be influenced by the fall-out of the Iraq war on the global economy.
The quarterly review of the economy released by the NCAER on Thursday states, lower world GDP growth could pull down the economic growth rate in India to 5 per cent. The Gulf war will have adverse impact on exports, business sentiments and flow of invisibles.

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Pointing out that industrial revival currently underway is sustainable, the report said, “to what extent it accelerates in the coming months will depend on the revival of investment activity in the economy.” The report welcomed the impetus provided by the Budget to sectors like construction, railways, health and tourism. However, it added, “the worrying factor is non-revival of investment spending, which is the key to a sustained industrial turnaround.”

The downturn in investment in plant and machinery, which began since mid-1990s, continues. Moreover, the report added, for the first time since 1997-78, the investment rate fell below savings rate in 2001-02. ENS

It has pegged India’s growth at 5.1 per cent, down from the earlier 6 per cent projection, mainly because of the Iraq war and low growth in the US and EU. China’s growth is forecast as highest, 7.5 per cent. Global growth rate has been revised from 2.8 per cent to 2.3 per cent. Growth in 2003 will be based on stimulative fiscal and monetary policies and on strong intra-regional trade, says the survey. Monetary policy is facing difficult choices in several economies, according to the ESCAP survey. ‘‘The survey underlines the failure of monetarism,’’ Kumar said.

Facilitated by lower interest rates in developed countries and lower inflation locally, most economies in the Asia-Pacific region, except one or two, were able to keep interest rates low in 2002, says the survey, adding that lower interest rates did not lead to higher credit growth.

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‘‘Thus monetary easing is as circumscribed in the real world as is fiscal policy, and its stimulating effects could be greatly nullified by a deflationary psychology.’’

ESCAP has recommended the maintenance of momentum of structural reforms and commitment to trade liberalisation, enhancing of productivity and competitiveness, ensure macroeconomic stability, and improvement in public and private sector governance. Commenting on India’s performance, the ESCAP Survey says, ‘‘Despite severe weather disturbances and unfavourable external factors, the growth momentum in India remained relatively strong. GDP expanded by 4.4 per cent in 2002 compared to 5.6 per cent in 2001.’’

Higher level of economic activity came from industrial and services sector, which in turn were underpinned by government spendings, measures to boost industry and infrastructure as well as liberalisation of capital and money markets, it says.