Intellectual Thoughts by Sanjay Panda: Uncle Sam's effect's

Uncle Sam's effect's

Even as the US economy grapples with a financial crisis, the developing Asian economies continue to be watched with growing apprehension. Last week, the Asian Development Bank (ADB) downscaled the growth expectations of many Asian economies — including India’s — in its half-yearly report, Asian Development Outlook 2008.

ADB attributes this to the worsening conditions in major industrial economies. “The myth of uncoupling has been exploded,” the report says. Among the other factors are the slowdown in Asia due to inflation; high borrowing costs; dampening investment and low consumer spending.

India’s gross domestic product (GDP) growth estimate for the current financial year (FY08-09) has been downgraded from 8 per cent to 7.4 per cent, and, for the next financial year (FY09-10), from 8.5 per cent to 7 per cent. ADB bluntly states that “Very large fiscal imbalance created by the current level of subsidisation of oil, fertiliser and food, as well as other off-budget items, sets a daunting task for economic management.”

Last month, a Citigroup research note had also revised its own estimates of India’s GDP from 7.7 per cent to 7.5 per cent for FY08-09 and from 7.9 per cent to 7.4 per cent for FY09-10.

Local economists, however, are not as pessimistic. “An 8 per cent GDP growth is possible thanks to growth in consumption (which will get a boost from the Sixth Pay Commission recommendations) as well as services and capital goods,

The debate continues.

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