India's Economic Growth Said To Moderate In 2007

A new report projects that India's record growth will soften slightly over the next two years.

The Asian Development Outlook, released by the Asian Development Bank, projects India’s economic growth to moderate to eight percent in FY2007 and increase slightly to 8.3 percent in FY2008. This is down from 9.2 percent during FY2006.

While wholesale price inflation reached an annualized rate of six percent in the third week of January 2007, it is expected to soften and then remain steady at five percent in both FY2007 and FY2008. According to the report, this moderation is due to tighter monetary policy, a rise in agricultural planting, an expected good spring harvest and cuts in import duties on key commodities.

While agriculture and related activities employ around 60 percent of India’s labor force, they only make up 18.5 percent of GDP. As a result, there is pressure to transfer land to higher productivity industry and other economic sectors.

Employment growth has picked up in other sectors. In particular, manufacturing has generated jobs for many of the less educated who are squeezed out of agriculture.

“As the agrarian challenge unfolds, substantial job creation in the infrastructure-scarce manufacturing sector is the key issue confronting policymakers,” says Ifzal Ali, Chief Economist of the Manila-based Asian Development Bank.