India's GDP to grow by 8.5 pc in 2007-08: ADB

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Singapore, Sept 17 (UNI) Continuing with its success story, India's GDP will expand by 8.5 per cent in 2007, up from the previous forecast of 8 per cent, and grow another 8.5 per cent in 2008, Asian Development Bank (ADB) said today.

India had been able to bring inflation under control, although infrastructure bottlenecks needed to be addressed and rural growth given a fillip, ADB said in its Development Outlook 2007, released in Manila.

''India's economy is on the right path and as long as the joystick is used adroitly, inflation will be kept under check and, at the same time, interest rates and the credit environment will be such that private investments and exports would continue to grow,'' it added.

''Two years of above-trend growth are causing inflation. Optimism over growth prospects has brought high capital inflows and currency appreciation pressure. Manufacturing and construction growth have stimulated a voracious appetite for credit, which in turn complicates attempts to control the money supply,'' the report said.

Terming agricultural stagnation as the key structural challenge, ADB said that rising food prices are contributing to inflation.

With inflation high, and serious structural hurdles for the economy to overcome, the Reserve Bank of India (RBI) is finding itself in a precarious position. It must curb expenditures in the short run, while also ensuring adequate credit supply to promote manufacturing and agricultural investments in the medium term.

''However, interest rates have risen, construction growth has already tapered, and the rupee is appreciating slightly.

agricultural planting has responded to rising prices. These trends will help moderate inflation. A soft landing therefore appears likely,'' ADB added.

The ADB said growth in the South-Asian region this year would be spearheaded by rapid expansion in China and India, which together account for about 55 per cent of regional GDP.

It forecast growth in China at 11.2 per cent in 2007, up from its March forecast of 10 per cent, and at 10.8 per cent in 2008.

''The two powerhouses, India and China, continue to barrel ahead at incredible rates,'' ADB said.

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