New Delhi: The Asian Development Bank (ADB) has forecasted that with signs of overheating, rising inflation and slowdown in construction business, the Indian economy is likely to see a slower growth of 8 per cent in 2007-08 against 9.1 per cent this fiscal.
In a report, 'Asian Development Outlook' released on Tuesday, it said that the economic growth will again pick up in 2008-09 to stand at 8.3 per cent.
“The situation could have been worse if the Government had not taken fiscal consolidation measures,” PTI quoted ADB Chief Economist Narhari Rao as saying.
Even at the current pace of infrastructure, economy could expand at 8 per cent, but nine per cent and double-digit growth requires infrastructure to expand at much faster rate, he said.
ADB also forecast inflation to come down to a tolerant level of five per cent in both 2007-08 and 2008-09 from the present over six per cent.
This is expected to be the result of tighter monetary policy, a rise in agricultural planting, an expected good spring harvest and cuts in import duties on key commodities.
The report said that domestic overheating is raising demand and has been forcing RBI to respond by raising interest rates.
“Rising interest rates will first dampen property demand and then have subtle and wide-ranging consequences in other components,” the report said.
"These restraints on demand growth from home buyers, manufacturing investors and consumers will be accompanied by fiscal discipline...These forces are expected to moderate growth rates bringing it down to 8 per cent in 2007-08," the report said.
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