Thursday, April 6 2006 15:29 Hrs (IST) - World Time -

Hong Kong: Indian economy is likely to slow down a little to 7.6 per cent in the fiscal year 2006 and 7.8 per cent in 2007 as consumption and investment may get affected due to higher inflation, Asian Development Bank said today (Apr 6, 2006).

However, to achieve over 9 per cent economic growth, India has to step up investment and raise capital productivity along with determined reform efforts, the bank said in its annual Asian Development Outlook report.

"India s economy is forecast to grow by 7.6 per cent in fiscal year 2006 and 7.8 per cent in 2007, slightly below the expected medium-term rate of growth," the ADB report said.

Growth, particularly in consumption and investment, will be held back by the fuel price adjustment process to reduce domestic petroleum subsidies, which is likely to boost inflation, the multilateral agency said.

Rising interest rates will have some modest negative effects on investment, it said.

India's growth has averaged more than 8 per cent over the past three years driven by broad-based domestic demand and expensive business dynamics.

ADB said India faces two key policy challenges as it continues its structural transformation.

First, India must maintain consolidation of its fiscal position, while ensuring spending on infrastructure improvements to support industry and services development, and investment to advance rural productivity and human development.

Secondly, it needs to improve the investment environment by lowering the cost of doing business.