Indian economy among fastest growing’

MUMBAI, JULY 16: Deutshce Bank has said India is expected to be one of the fastest growing economies in the world over the next two years...

MUMBAI, JULY 16: Deutshce Bank has said India is expected to be one of the fastest growing economies in the world over the next two years. The Indian economy is on a strong recovery path despite political turmoil and the Kashmir conflict, according to the bank’s latest weekly report on emerging markets.

The report said while data supporting the revival theory was available only for a few months, the breadth of data could not be ignored. The rise in industrial production in April, a 23 per cent growth in cement sales in the first two months of the year, a 21 per cent rise in government revenues in April-May and a 12 per cent increase in exports in May all suggested an economic revival.

The factors driving the revival are the positive supply-side effect from a bumper winter crop and the accommodative monetary stance of the Reserve Bank of India (RBI), the report said.

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"The Reserve Bank’s 100 basis points reduction in interest rates in March and the improved competitiveness of the Indian rupee areimportant factors that have helped the economy revive despite the collapse of the Bharatiya Janata Party-led coalition and the resultant delay in implementing reforms," it said.

Deutsche Bank estimated the direct fiscal cost to India of the Kashmir conflict at Rs 2,400 crore. "After accounting for the additional cost of holding elections, the central government’s fiscal deficit will amount to 6.3 per cent of GDP this year compared to six per cent in 1998/99," the bank said. "This is not sustainable in the long run but is acceptable under current circumstances since financing is assured," it said.

The bank said it expected technology to become a significant driver of GDP growth. There will be no immediate risk on inflation or imports from the increased domestic demand given the exceptional shock supply from the bumper winter crop, the bank said.

Agricultural output rose 13.7 per cent in January-March, it said. "The current account and the exchange rate are also unlikely to come under pressure," thereport said. The trade balance will benefit from a fall in gold imports and exports will benefit from an improved external environment and competitive real exchange rate, Deutsche Bank said.