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'India's GDP to average 7.2% over 5 years'

Last updated on: June 22, 2009 20:06 IST

India's realĀ gross domestic product growth will average at 7.2 per cent over the next five years even as risks to the global economy continue to remain high, the Economist Intelligence UnitĀ has said.

The world's second-fastest growing economy may also see negative inflation for the next 3-6 months triggering expectation of rate cuts by banks, the research arm of London-based Economist added.

"Emerging Asia will be the world's fastest-growing region over the next five years (2010-13), but this mainly reflects a relatively strong growth performance by India and China. The EIU expects India's real GDP growth to average 7.2 per cent over the next five years," it said.

Global share prices have been rising on expectations that the worst of the global economic meltdown is over. However, a sustainable recovery is distant, it maintained.

"India is likely to see negative inflation for three to six months, making a case for further rate cuts by the central bank. We expect the repo rate to be cut by a further 50 basis points, to 4.25 per cent, in the next few months," EIU director of research Manoj Vohra said.

Inflation turned negative 1.61 per cent for the first time in 30 years for the week ended June 6.

Vohra, however, said negative inflation is not a grave concern for India. (There may be more green shoots of recovery in the global economy as fiscal and monetary stimulus packages start to have an impact, but "growth over the next two years will be marked by a high degree of volatility", Vohra said.

There will be a substantial slowdown in quarter-on-quarter growth rates once the stimulus fades, he added.

"Risks to the global economy remain high. The most serious concern is that various stimulus packages being implemented globally will not be sufficient to trigger self-sustaining recovery," the Economist said.

"For India, the biggest risk to growth remains its ballooning fiscal deficit," it added.

It is also possible that there may be a much sharper snap-back in growth over the coming months and create problems for policy-makers, Vohra said.

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