New Delhi, March 27: Biting infrastructure constraints are expected to tone down India’s blistering 9 per cent growth and the economy will grow at a rate of 8 per cent in 2007. This was revealed in Asian Development Bank’s (ADB) flagship publication, Asian Development Outlook.

However, the economy will have a soft landing because of tight industrial capacity, expanding consumption goods markets and healthy demand for exports. Growth is expected to pick up in 2008 to touch 8.3 per cent. Inflation would moderate to 5 per cent in 2008.

Addressing a press conference here today, ADB’s principal economist Narahari Rao said there were “definite signs” of overheating in the economy (high growth combined with high inflation). This overheating, he said, was structural and not cyclical (caused by the normal ups and downs of business cycles) — a distinction drawn by C. Rangarajan, chairman of the Prime Minister’s economic advisory council at a book release function in Delhi last week. Rangarajan had said the current overheating was cyclical and could become structural if infrastructure constraints were not addressed.

The moderation in India’s growth would be part of an overall tempering across the region. The Asian Development Outlook says developing Asian economies will grow at 7.6 per cent in 2007 and 7.7 per cent in 2008, down from 8.3 per cent in 2006, the fastest since 1985. However, the bulk of this growth — 70 per cent — came from China and India.

Slower growth would also result from higher interest rates (which will primarily affect the property and real estate market), a reduction in overall consumer demand and fiscal discipline, the report’s India chapter says.

Underlying India’s robust growth was the strain of inadequate infrastructure, which needs to be addressed on a war footing, Rao said.

“If the economy grows at 9 per cent over the next two years, the possibility of overheating and measures to cool it down may have effects that will not be entirely desirable,” he cautioned.

Describing the current high inflation levels as demand-led, Rao said consumption needs to be restrained in the short run. While the Reserve Bank had been doing this by increasing the cost of borrowed funds, the real challenge would be to ensure that this does not have a negative effect on the manufacturing sector by making credit too expensive.

The report lists four areas that need to be addressed on a priority basis to sustain growth — reviving the agricultural growth rate, good food supply management, monetary management that attempts to check inflation without hurting growth and sound exchange rate policies. Rao cautioned against any tinkering with the exchange rate to prevent the rupee from appreciating.