ADB sees India's growth picking up to 6 per cent this year

The Asian Development Bank (ADB) on Tuesday said domestic consumption could boost India's slowing economy to 6 per cent growth this year. However, the country may still fail to reach that level if it does not follow through on reforms to encourage investment.

"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 per cent this year from 7.5 per cent last year," ADB's Asian Development Outlook said.

A population of 1.2 billion makes India a potentially blockbuster market, and domestic consumption will likely revive the economy this year, the outlook said.

The ADB said GDP growth has the potential to reach 6 per cent this year and 6.5 per cent in 2014. It stressed that India "must create a more favorable environment for investment if it is to sustain this higher rate."

India ranks a low 132 out of 195 countries on the World Bank's annual ease of doing business survey.

The government recently has sought to encourage foreign investment through reforms including allowing more foreign investment in retail, aviation, broadcasting and insurance.

The growth forecast, however, 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.

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 per cent growth each year to create enough new jobs.

Just a few years ago, India was seen as a rising economic power that could even rival China, with growth of over 9 per cent. However, growth last year slowed to its lowest rate in a decade, estimated by the government at 5 per cent.

The slowing growth has been paired with persistently high inflation. High prices, especially for food, limit the Reserve Bank of India's scope to reduce interest rates, although the central bank last month made its second cut this year to a key lending rate.

Prime Minister Manmohan Singh last week promised to cut red tape and invest in infrastructure such as electricity and transport, urging business leaders not to succumb to a "mood of negativism".