The Indian economy is expected to grow by 6 per cent in 2009 as capital inflows, industrial production and business confidence soar, the Asian Development Bank (ADB) said on Tuesday.
In the Asian Development Outlook 2009 Update, the bank said that while agricultural output for 2009 was expected to remain stunted and exports weak, adroit economic management in the form of fiscal stimulus packages and accommodative monetary policy had minimised damage from the global financial crisis.
It was also supporting a relatively strong economic expansion again, the report said. It forecast a growth of 7 per cent for 2010, also an upward revision from the 6.5 per cent projection of March.
"The government's strong fiscal stimulus, complementing the Reserve Bank of India's (RBI) aggressive monetary policy easing, has successfully brought last year's economic slowdown to an end," ADB Chief Economist Jong-Wha Lee was qouted as saying in a press release.
The report said that while the public expenditure-led growth strategy remains appropriate given global economic weakness, the growing federal and state government deficits were not sustainable in the long run.
One downside risk to the outlook for the economy was financial crowding out of private investment as a result of India's stimulus programme, the report said, adding that this risk was most likely to arise in 2010.
The report underscored the need for the government to follow through on its plans to make fiscal adjustments.
Another potential threat was that domestic food price inflation might create a dilemma for monetary management in 2009 as the RBI seeks to keep inflation expectations in check but not to choke off a recovery, the report added.