The Hindu Business Line : UN pat for India's `economic performance' — Manufacturing, infrastructure development in forefront

THE United Nations has extolled India's "strong economic performance" in 2005, driven largely by the manufacturing sector, booming domestic demand for consumer goods as well as infrastructure development.

In its flagship publication, World Economic Situation and Prospects 2006, released in New York today, the UN report also took due note of the "strong response by the business community to opportunities created by an expanding domestic market as the middleclass grows — thus sustaining consumption demand — infrastructure bottlenecks started to be addressed and prospects of exports remained positive". Singling out the Bharat Nirman (Building India) programme, which comprises investments totalling $40 billion over a four-year period starting in 2005, the report said this would add impetus to demand for industrial goods over the medium term.

India's services sector also performed well, supported by the continued strong growth of information technology (IT) services as well as tourism and tourism-related activities.

Even as agriculture remains dependent on monsoon rains, it said there has been a return to near normal harvests, which contributed to growth in the year.

Current a/c deficit in South Asia: Taking a broader picture of South Asia, the report said unlike East Asia, most economies in the region face current account deficits, caused by increased expenditure on oil imports and by strong import demand.

Increased private savings are mostly channelled into domestic private investments through the financial system, as visible from the strong demand for private credit for emerging business opportunities in industry and services, as well as the strong increase in home loans in many parts of the region.

As a result, it said, there is only a small ex post gap between private savings and investment.

As a percentage of GDP, current account deficits remain within acceptable limits, owing to the continuing flow of remittances from South Asians working overseas.

Service incomes buoyant: In the case of India, service income also remains strong thanks to buoyant IT and back-office service exports.

Referring to the global economy, it said world economic growth slowed in the course of 2005 and is likely to continue at a moderate pace in the near term.

World gross product is projected to expand by about 3 per cent in 2006, thereby keeping up the pace estimated for 2005.

It said economic growth will remain notably stronger in developing than in developed economies, but both groups of countries would experience a slowdown from 2004.

China, India key: While developed economies are expected to grow at 2.4 per cent in 2005 and 2.5 per cent in 2006, down from 3.2 per cent in 2004, growth in developing countries will slow from 6.6 per cent in 2004 to about 5.7 per cent in 2005 and 2006. "The still rather robust performance in the developing world relies in part on very strong and sustained growth in Chin and India," the UN report said.

Pointing out that global imbalances constitute a downside risk, it said such imbalances widened further during 2005. The current account deficit of the US surpassed $800 billion, matched by increased surpluses elsewhere, particularly in Europe.

It hastened to add that in several parts of the world, growing savings surpluses seem to be essentially caused by stagnating or reduced investment rates, as investment has been `anaemic' worldwide, it said.