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India need not worry over oil price rise for now: ADB

P. S. Suryanarayana

Singapore , Sept. 22

ALTHOUGH the Asian Development Bank projected a slow-down of India's economic growth to 6.5 per cent in fiscal 2004 and six per cent in 2005, due to current high oil prices among other factors, an ADB official told Business Line that the issues relating to crude pricing in the international market were of "no crisis" proportions for New Delhi "at this moment."

Responding to questions on India-specific projections, which were released in New Delhi on Wednesday, the ADB Assistant Chief Economist, Mr Jean-Pierre Verbiest, said that the oil price issue, as of now, "puts some pressure on inflation and some pressure on the current account" in India. The situation "is quite manageable.... and there is not much one can do over the short term."

The ADB's assessments were based on the assumption of "a baseline oil price" of $32-$35 a barrel over the next year. Noting that the oil price movement beyond this period was indeed "anybody's guess" and that the current political situation in "Iraq is [just] one cause of it," Mr Verbiest said the measures to be taken to make the (Indian) economy fuel-efficient were feasible, essentially, over the medium term or beyond.

"Some policy tightening" to address inflation "could imply some slower growth," while "it may be difficult to deal with subsidies," he said, underlining that the Indian Government had taken some steps to redress the impact of oil prices and some unfavourable weather conditions on the economy.

The RBI also resorted to "some tightening of the monetary policy" in this context.

Agreeing that India's "fairly comfortable" foreign exchange reserves could act as a cushion to absorb the effects of the oil price rise, Mr Verbiest said the international oil market was now largely demand-driven, with China and India, too, accounting for the current situation.

On the plus side of the India ledger, he said, "The fundamentals of the economy are quite strong" and the country's exports in the first half of calendar 2004 registered a "quite-remarkable" growth of 31.5 per cent, compared to the corresponding period in 2003.

Mr Verbiest said ADB was studying India, Indonesia, Thailand, the Philippines and Vietnam on a `sample' basis, under a new research project on the perceived mismatch between economic growth rates and employment generation.

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