The report underscores that higher growth would depend on a recovery in both agriculture and industry. Industrial recovery, the report says, would be directly proportional to the extent kinks are ironed out in the infrastructure area. Speaking at the release of the report, Klaus Gerhaeusser, senior economist with ADB, underscored that low interest rates and easier availability of credit is critical for industrial recovery.

In 1998, the report projects an export growth of a mere 7.5 per cent and an import growth of 9.9 per cent with current account deficit pegged at over two per cent. The following year export growth is pegged marginally higherat 7.8 per cent with imports estimated at 11 per cent.

The report remarks that with exports rising slower than imports, the trade deficit will widen, leading to a substantially wider current account deficit. In this context, it goes on to say that the rupee is overvalued, "in light of the Asian currency crisis, the authorities must try to ensure that India's exchange rate remains competitive."

Building an argument for further devaluation of the rupee the report says, as massive devaluations have occurred in Indonesia, Korea, Malaysia, Philippines and Thailand the rupee by comparison is "significantly overvalued." It adds that as few of India's exports compete directly with those of south-east Asia, the currency depreciations have increased the attractiveness of these countries as locations for foreign direct investment and tourism. Further depreciation would, therefore, be necessary to maintain India's external competitiveness, it says.

The report cautions that interventions by the Reserve Bank of Indiain the currency market might affect industrial recovery. It says measures as lowering the cash reserve ratio by two per cent in January could choke off industrial recovery by dampening business enthusiasm to borrow funds for investment.

"These considerations suggest that the authorities will need to weigh carefully the costs and benefits of supporting the rupee of it comes under renewed pressure during 1998," it warns.

ADB's diagnosis of India's primary problem is lack of proper infrastructure. It says that to attain seven per cent growth, investment in infrastructure needs to be increased by almost 50 per cent in real terms during the next decade. As the Government is not equal to the task of hiking capital expenditure, private sector investment will have to jump seven-fold per annum to $ 23 billion by 2007.

Projections are over ambitious

NEW DELHI: Multilateral lending agency the Asian Development Bank (ADB) today said the eight per cent economic growth and 20 per cent export growthprojected by the government for 1998-99 was "slightly over ambitious".The Indian economy would no doubt recover from the industrial and gross domestic product (GDP) slowdown and poor export performance in 1997-98, but the government projections are certainly "on the higher side", a senior ADB economist, Klaus Gerhaeusser, told newsmen here.

While the potential for a stronger recovery in industry existed, infrastructure constraints were becoming increasingly binding, he said.

Gerhaeusser said India's small exposure to short-term debt had in a way insulated it from the south-east Asian currency crisis. Also, the current account deficit though had gone up from 1.2 to 2.0 per cent of gdp, was still at a manageable level.