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High deficit choking India's growth: ADB
February 03, 2005 20:17 IST
Three weeks ahead of the Budget, Asian Development Bank expressed concern over high fiscal deficit, which, it said, was acting as a roadblock to India's economic growth.
ADB, however, stuck to its earlier growth projection of 6.5 per cent for India in 2004-05 despite the adverse impact of Tsunami, on the back of a high 8.5 per cent of last fiscal.
"I believe that 0.5-1 per cent of growth is lost due to the large deficit," ADB chief economist Sudipto Mundle told PTI in New Delhi.
He said the government should take reformist measures in the forthcoming Budget to rein in the deficit.
The combined fiscal deficit of the Centre and the states is close to 10 per cent of India's GDP.
Pointing to large demand for credit by the government on account of the fiscal deficit, Mundle said it was leading banks to invest more funds in government securities instead of lending money to small enterprises and rural bodies.
"The government is considered a safer option for lending with relatively high interest and zero risk. Thus, the SMEs and rural bodies lose out on funding which can be crucial to development and simultaneously to growth," Mundle said.
On inflation, he said it was expected to stay between 5-6 per cent. "The rise earlier this year was primarily on account of increased oil prices in the global market."
The other concern that the ADB official pointed to was the lack of proper infrastructure in the country."There is a big backlog to catch up. Despite government making efforts, roads, railways and ports still need to be improved up to international standards," Mundle said.