The World Bank
has projected 5.1 per cent growth for India
in 2009, revising its earlier projection of 4 per cent.
In its Global Development Finance Report 2009 released yesterday, the bank has also projected an 8 per cent growth for India in 2010, overtaking China`s expected growth of 7.7 per cent.
However, the developing countries are expected to grow by only 1.2 per cent this year, after 8.1 per cent growth in 2007 and 5.9 per cent growth in 2008.
The Indian economy had grown by 6.7 per cent in 2008 against the World Bank`s estimate of 6.1 per cent.
`When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6 per cent, causing continued job losses and throwing more people into poverty,` the report said.
The bank has urged rich countries to boost the flow of credit to developing nations to help speed up economic recovery. ``Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit,`` said Justin Lin, World Bank chief economist and senior vice president, Development Economics.
Despite the gloomy picture for this year, the bank says growth in developing countries, led by India and China, could reach 4.4 per cent in 2010 and 5.7 per cent by 2011.
The Reserve Bank of India itself has put the possible growth numbers at six per cent - 0.9 percentage points more than the estimates of the World Bank.
Amidst global economic recession and financial-market fragility, net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion.
The report continues to sound bleak on the global economic prospects, which remain `unusually uncertain` despite recent signs of improvement in some parts of the world. Barring a few countries, including India and China, the bank has cut 2009 growth projections for all other economies and expects the world economy to contract by 2.9 per cent this year.
`Developing countries are expected to grow by only 1.2 per cent this year, after 8.1 per cent growth in 2007 and 5.9 per cent in 2008. When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6 per cent, causing continued job losses and throwing more people into poverty,` the report said.
On the outlook for India and South Asia, the Bank further said, ``The relatively rapid recovery in regional activity to close to potential output growth comes despite the weak recovery projected elsewhere and reflects the lagged impact of recent monetary policy easing - with some potential for further interest rate cuts.``
The bank said a stable government at the centre and its reform agenda has improved investor sentiment and could yield an even stronger recovery in investment demand.
Foreign direct investment inflows into India fell from 4.6 per cent of gross domestic investment in the third quarter of 2008 to 0.7 per cent in the fourth quarter as result of the downturn, the report said.
Remittances, which account for 3 per cent of India`s foreign exchange inflows, may deteriorate in 2009, it added. In dollar terms, India received $27 billion (Rs1.3 trillion) in remittance inflows in 2007, the highest among developing countries.
Fiscal stimulus measures, the World Bank said, should however provide a boost to household income and spending, though there is limited space for further stimulus.
In 2008-09, the fiscal stimulus provided by India amounted to about 3.5 per cent of India`s GDP. ``As a consequence, the public sector deficit is projected to have increased from 5.8 per cent of GDP (gross domestic product) in 2007 to 9.8 per cent in 2008 and to over 12 per cent as of early-2009,`` the bank said.
It added that large fiscal deficits may lead to cuts in development spending and may put a threat to long-term growth prospects by crowding out private investment and leading to higher interest rates. ``Growing public sector obligations are also likely to translate into increased debt ratios, raising the risk of default,`` the World Bank said. Central government debt represents close to 55 per cent of India`s GDP, the report said.
The report calls on governments around the world to be vigilant when drawing up strategies to reverse the recent expansionary monetary and fiscal policies once the world economy takes off.
The bank has urged rich countries to boost the flow of credit to developing nations to help speed up economic recovery. ``Developing countries can become a key driving force in the recovery, assuming their domestic investments rebound with international support, including a resumption in the flow of international credit,`` said Justin Lin, chief economist at the World Bank.
The world`s gross domestic product, may shrink by 2.9 per cent and global trade is expected to plunge by 9.7 per cent this year, the World Bank said. In March, it had predicted a 1.7 per cent global contraction.