NEW DELHI (AP) — Domestic consumption could boost India's slowing economy to 6 percent growth this year, but the country may still fail to reach that level if it does not follow through on reforms to encourage investment, the Asian Development Bank said Tuesday.
High Inflation, a key concern that is hampering India's scope to jump start the economy with lower interest rates, is forecast to ease to 7.2 percent this year from 7.5 percent last year, the ADB's Asian Development Outlook said.
The growth forecast is an improvement over disappointing numbers last year but still far short of what Asia's third-largest economy needs to create enough jobs for its huge, youthful population.
Just a few years ago, India was seen as a rising economic power that could even rival China, with growth of over 9 percent. However, growth last year slowed to its lowest rate in a decade, estimated by the government at 5 percent.
The slowing growth has been paired with persistently high inflation. High prices, especially for food, limit the central bank's scope to reduce interest rates, although the Reserve Bank of India last month made its second cut this year to a key lending rate.
A population of 1.2 billion makes India a potentially blockbuster market, and domestic consumption will likely revive the economy this year, the ADB said in its forecast.
But that demand is offset by increasingly hesitant investment blamed on regulatory snarls, overburdened infrastructure, laws limiting foreign investment in certain sectors and widespread corruption. India ranks a low 132 out of 195 countries on the World Bank's annual ease of doing business survey.
The ADB said GDP growth has the potential to reach 6 percent this year and 6.5 percent in 2014. It stressed that India "must create a more favorable environment for investment if it is to sustain this higher rate."
Prime Minister Manmohan Singh last week promised to cut red tape and invest in badly needed infrastructure such as electricity and transport, urging business leaders not to succumb to a "mood of negativism."
The government recently has sought to encourage foreign investment through reforms including allowing more foreign investment in retail, aviation, broadcasting and insurance.
More than half of India's population is under 30 years old and some 13 million Indians reach working age each year. India's finance ministry estimates the country needs at least 8 percent growth each year to create enough new jobs.