Recent estimates suggest growth of 5.8 per cent may be achieved during the fiscal year 1998-99 and it is likely to be 4.8 per cent in 1999-2000, based on a rebound in fixed capital formation and an acceleration in industrial production, says the `Global Development Finance 1999' report released here on Wednesday.

It says a significant acceleration in growth over the forecast period will be difficult to achieve as restrictive trade policies, a high public sector deficit and supply bottlenecks will continue to constrain growth over the medium term.

The Bank notes the Indian economy includes some extremely dynamic and competitive sectors, including software (growing at more than 75 per cent per year) and gems and jewellery (10 per cent), but reforms needed torevitalise the economy as a whole are proceeding slowly. Dealing with the region as a whole, it says so far East Asia's financial crisis has had only a limited impact on South Asia, which last year grew at 5.2 per cent, making it the fastest growing region of the world in 1998. India, the dominant economy in the region, was protected by its large domestic market and capital account restrictions that dampened the effects of turbulence in international capital markets, it notes.

Throughout 1998 the rupee was allowed to drift lower to safeguard the competitiveness of exports and the real effective exchange fell 10 per cent between August 1997 and December 1998. This put it at about the same level as in late 1993, it adds.

One result, the report predicts, will be higher consumer price inflation for 1998-99. By contrast, wholesale price inflation has been much lower (the yearly rate is expected not to exceed five per cent during 1998-99) owing to low and declining prices of agricultural commodities, fueland power prices.

In spite of the economic sanctions that followed the nuclear tests in May 1998 and the deterioration of market sentiment, India successfully launched a five-year Resurgent India bond in August in 1998, attracting more than $4 billion from NRIs, it notes. But trade and fiscal balances deteriorated, it adds.

The report says the trade deficit widened and despite low oil prices, the current account may reach 2.5 per cent of GDP in 1998-99 compared to 1.6 per cent in 1997-98. The Central government deficit may rise to about six per cent of GDP in 1998- 99, above the target of 5.6 per cent because of a shortfall in government revenues.

Though no official debt restructuring took place in South Asia, the Bank document points out, the debt-to-export ratio increased from 193 per cent in 1997 to 201 per cent in 1998 due to the increase in total external debt, despite the rise in exports. The debt-to-GNP ratio increased slightly.

It says aggregate flows to the region declined from $15billion in 1997 to $12 billion in 1998. Net private flows fell to $8 billion. While FDI declined only slightly, flows from the international capital markets (bonds, bank lending and portfolio equity) fell to $3 billion compared to $6 billion in 1997. As in past years, India received most of the region's net private flows, the report notes. It says net private-source debt flows to South Asia totalled $3 billion in 1998, down only slightly from $4 billion in 1997, despite investor concerns over the implications of the region reaction to the nuclear tests in India and Pakistan.

Another factor contributing to the lower figure was the general retreat from emerging markets following the Russian debt moratorium in August.

India Abroad News Service