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India will grow below 8pct – UN

United Nations report released said that Indian economy is likely to grow at 8% per annum between calendar years 2011 and 2013. The report, World Economic Situation and Prospects 2012, projected India’s growth at 7.6% in 2011, 7.7% in 2012 and 7.9% in 2013.

The UN measures economic growth of countries by factoring in the exchange rate as well. Hence, official growth numbers might vary.

The report said double dip recession in the US and Europe would have a bearing on economic activity across South Asia, as the two nations are key export markets and the main source of tourism revenues for South Asia. The slowing of economic growth in India from 9% in 2010 had weighed heavily on South Asia, expected to grow by 6.7% in 2011 from 7.2% in 2010.

Exports to Europe and the US made up 30% of India’s total. Exports have been sluggish lately with trade deficit widening to USD 133 billion during April to December.

The report also cautioned India about not meeting its fiscal deficit target of 4.7% of gross domestic product for 2011-12, saying lower growth had brought down tax revenues and disinvestment in state-run companies and this was not according to plan.

Pointing out that Reserve Bank of India went aggressive on inflation, increasing rates 13 times since March 2010, the report said the tide had started to turn towards supporting domestic demand.

RBI will review its policy on January 24 and is widely expected to not cut key rates even as inflation fell for the first time below nine per cent to stand at a two year low of 7.47% in December 2011. On a cheerful note, however, the report said inflation would decline slowly in the South Asian region, averaging 9.1% in 2012 and 8% in 2013, on the back of easing food and commodity prices, coupled with the impact of monetary tightening in Bangladesh and India. It expected central banks in South Asia to move towards a growth-supportive monetary policy, if inflationary pressures eased.

The report gave a positive outlook for India’s job market and said that “India is enjoying gains in employment rates.” As global economies experienced a slowdown, the UN prescribed fiscal expansion to propel economic growth instead of austerity measures adopted by some countries.

On the global front, the UN Department of Economic and Social Affairs slammed policy makers through Europe and the US, fixated on reducing large fiscal deficits and public debt. It said this would further weaken prospects of job recovery and economic development in the long run and exacerbate the lack of aggregate demand.

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