The Telegraph
Since 1st March, 1999
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Gulf war shadow on growth forecast

New Delhi, April 2: The World Bank today forecast that India’s GDP growth rate for the current year will be around 5.3 per cent, well below the Central government’s projection of a 6 per cent growth. The Bank, however, warned that a prolonged war in the Gulf could hit even this growth projection.

“The length of the war will impact GDP projections and we will be reviewing it,” said William Shaw, lead economist of the World Bank’s International Finance team. Rising oil bill and falling exports, both fall-outs of a prolonged war, and the attendant inflation and economic slow-down could force this revision, he said.

However, the silver lining is that India’s remittances from expat workers which were in excess of $ 10 billion last year, could go up further. The World Bank, which expects oil prices to surge if the crisis in the Gulf continues, says the boom in oil prices could mean more jobs and better pay packets for expat workers in the Gulf.

The Bank, which released the Global Development Finance Report today, forecast the global economy would grow by just 2.3 per cent this year and added that even this could be hit by the war. The developing world as a whole will grow by 4 per cent, far behind the Indian sub-continent’s growth rate.

Importantly, the Bank said there has been a significant shift in private sector funding flows for developing countries like India, “away from debt to equity related FDI flows.”

This has happened partly because most developing nations have decided to follow India’s example of encouraging more of non-debt creating flows and partly because lenders have grown more wary of loans to developing nations.

It also reports that India itself joined the top 10 recipients of FDI receiving $ 3.6 billion in 2002 and the sub-continent is expected to garner about $ 5 billion this year.

Foreign exchange reserves have consequently risen for India and now equals eight times short-term debt and nearly 10 months of imports, the highest level among the six geographical regions into which the world has been divided.

External equity flows are expected to continue to go up in the medium term mainly because tensions between Pakistan and India have eased since September 11, the report states. It also states that privatisation programmes and higher corporate profits and grant of dual citizenship by India will drive equity flows up.

South Asia as a whole has the lowest external liability expressed as a percentage of its GDP at 30 per cent throughout the globe. The highest is Sub-Saharan Africa’s which is a high of 90 per cent, while the second lowest is West Asia’s which stands at 42.5 per cent.

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