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ADB cuts India's economic growth forecast for FY'14

By Religare

The Asian Development Bank (ADB) on Wednesday slashed the growth estimate for India's economy amid high interest rates, weaker rupee, capital outflows coupled with structural bottlenecks and policy paralysis.

Asia's third biggest economy is tipped to grow by 4.7 per cent in FY 2013-14, down from the previous projection of 6 per cent growth.

In Q1 FY 2013-14, India's economy grew at the slowest pace since the global financial crises at 4.4 per cent as domestic and global factors took toll.


"Persistent supply-side bottlenecks such as poor infrastructure and long delays in structural reform keep industry and investment lagging. Fiscal and current account deficits also dent business confidence", ADB said.

The record depreciation of the rupee and inflation at a six-month high forced the Reserve Bank of India to tighten monetary policy and raise interest rates, dampening business confidence and crimping capital spending.

At the same time, the slow pace of structural economic reforms and the government's inability to prune the twin deficits. i.e., CAD and fiscal deficit has hampered foreign investor confidence, resulting in capital outflows.

"Setting aside weak foreign demand, frail industry and investment in India reflect persistent supply-side bottlenecks such as poor infrastructure and delayed structural reform to ease these constraints. India's current account deficits and volatile capital flows further dent business confidence", ADB said.

The ADB said that the decision to fast track regulatory clearance for large projects of key infrastructure sectors is a positive for the economy.

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