Strong growth before moderation: OECD

With the non-agricultural sector continuing to perform well and the agricultural output expected to rebound sharply...

With the non-agricultural sector continuing to perform well and the agricultural output expected to rebound sharply,Indias economic growth should be strong in the near term before moderating to around trend rates,says the OECD8217;s twice-yearly economic outlook on India. The Indian economy has been projected to grow at 8.3 per cent this year and at 8.5 per cent next year.

According to the Organisation for Economic Cooperation and Development OECD,the expected rebound in agricultural activity should help limit further increases in food prices,which have been a major contributor to the recent high inflation. However,underlying inflationary pressures are likely to persist given the strong outlook for demand, it says,adding,Timely policy action to limit the scope for second-round price increases is therefore required. Monetary policy normalisation is also important in the light of relatively modest fiscal consolidation.

The economic outlook report,released at the OECD headquarters here today,stresses that even as towards the end of 2009 growth slowed to a rate well below potential because of a contraction in the agricultural output in the fourth quarter,growth in the non-agricultural sector remained solid and became more broad-based. It also cites the recovery in exports,which began in the second half of 2009 in line with the recovery in world trade.

Talking to The Indian Express,OECD chief economist Pier Carlo Padoan said capital inflows to the emerging markets were not a short-term phenomenon any more and foreign investors in markets such as India were there to stay,on account of good long-term growth prospects. India still has a huge untapped growth potential. The world should be grateful to the emerging economies for keeping good growth going even in times of crises, he said.

When asked if achieving double-digit growth was a realistic target for India,he said it would be more important to keep high single-figure growth going steadily over the long term. 8220;The important thing is not to go from 8 to 10 per cent you may hit 10 and then drop but it8217;s whether you can sustain 8 or 8.5 per cent over the long term, he said.

According to the OECD,after a relatively modest reduction in the large government deficit to around 5.5 per cent of GDP in Budget 2010,modest fiscal consolidation is also anticipated at the sub-national level based on higher payments from the central government and revenue buoyancy. However,it cautions that sizeable further monetary tightening will be required through 2010 and into 2011 after a number of small steps towards normalising the policy taken by the RBI since October 2009.