The global downturn will put more pressure on the Indian economy next year and the government will have to speed up investments to sustain high growth rates, a report jointly prepared by the World Economic Forum and the Confederation of Indian Industry, said.

India could see a sharp outflow of capital, and a fall in share and asset prices due to the global financial crisis, the report, released ahead of the annual India Economic Summit starting 16 November in New Delhi, said.
 
"India's dependence on capital flows to finance its current account deficit is a macroeconomic risk and the global crisis could generate a sharp increase in capital outflows and a reduction in the availability of finance," the report said.

''India's own markets and growth outlook have not escaped; the latest IMF forecast for GDP growth in 2009 is now 6.9 per cent. Clearly, the global economic picture will be harsher next year and there will be greater pressures on the Indian economy. Should this global downturn trigger a rise in protectionism and retrenchment from globalisation, there is little doubt that highgrowth economies will also be affected through downturns in trade. However, a greater risk could come from a deeper retrenchment from globalisation, which could manifest itself not only through decreased trade but also through countries taking tougher stances on global issues such as climate change, resource management, and the role and reform of international organisations,'' it noted.

Foreign investors in India have sold shares worth more than $12.5 billion so far this year while the rupee fell by more than 20 per cent.

"It (global crisis) could also weaken the balance sheets of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking global growth," WEF said.

"A tighter environment may also help speed reforms and encourage greater efficiency," WEF said, adding a great deal of political will and dialogue with different stakeholders would be required to take reforms forward.

Risks to India were more societal, geopolitical, economic and environmental, the report said.

The global uncertainty affecting the financial markets and concerns about the global economic outlook have increased the chances of global contagion. Sluggish demand coming from developed economies might affect Indian exports in the coming quarters.

Economic growth in the second quarter of 2008 fell by 1.3 per cent to 7.9 per cent, compared with the same period last year. In the long run, all the indicators for the Indian economy point to sustainability of growth rates: the International Monetary Fund (IMF) prospects for GDP growth for 2008 and 2009 are 7.9 per cent and 6.9 per cent, respectively.

"India's growth is still strong relative to other economies and its growth story will continue to be one that will unfold over decades rather than years," the WEF report added.