Kolkata: The Asian Development Bank has predicted that the Indian economy is expected to grow at 6 per cent during 2002-03 given a moderate pick-up in domestic demand as well as a rebound in global markets. A moderate rate of inflation has been predicted at 4 to 5 per cent.

In its Outlook 2002 report, which provides a detailed analysis and assessment of macroeconomic trends - including fiscal, monetary and balance of payments developments - of 41 countries in the Asia-Pacific region, ADB has warned that as the Indian economy approaches full capacity utilisation and the investment demand recovers, structural impediments such as high fiscal deficits and high real interest costs may become binding constraints to economic performance if they are not dealt with seriously.

The document further says assuming that visible and effective interventions are made both to address the structural fiscal deficits and to facilitate further reduction in interest rates, the economy will grow at a 6.5-7 per cent in 2003. For this to happen, it requires a solid performance from the agricultural sector as supported by the effects of reform and modernisation.

A moderate rate of inflation has been predicted because of substantially unutilised industrial activity and the industrial sector would respond quickly to the increase in demand without undue inflationary pressure in the short term. But downward pressures on the price level may be accentuated by the availability of cheap imports, provided that the positive impact of the removal of quantitative restrictions in compliance with World Trade Organisation obligations is not offset by other forms of protection.

Improvement in growth performance also hinges on the assumption of continued industrial recovery and strong services sector performance in a favourable external demand environment.

ADB further predicts that export growth should return to a double-digit rate even though this is unlikely to touch the exceptional levels attained in the year 2000. The current account deficit is expected to remain moderate under the assumption of fairly stable oil prices at around 1 per cent of the GDP.

While ADB has called for further liberalisation of foreign direct investment, it has suggested that certain necessary policy actions to be undertaken in order to accomplish the growth projections for the near future. These concern removal of restrictions in key entrepreneurial decisions concerning scale and factors of production.

They also include small-scale industry reservations that pre-empt the adoption of optimal scale of production and archaic labour laws that hinder the producers' ability substantially to retrench and restructure their businesses when market conditions require them to do this.

On the global scenario, Outlook says that global economy weakened through most of 2001. The US economy contracted further after the 11 September events. But the economy strengthened somewhat during the third quarter. Output in Japan contracted in the latter part of 2001 and in Europe, the growth that had started slowing after the first quarter weakened further toward the end of the year.

In early 2002, amid indications of a recovery in the US, most other industrial countries are expected to show some signs of strengthening over the course of the year. This edition of Outlook also includes a section on Afghanistan.