ADB lifts India's FY10 growth forecast to 6 pct

NEW DELHI (Reuters) - The Asian Development Bank on Tuesday raised India's growth forecast for 2009/10 on higher public spending, stronger factory output and improved business confidence, but warned rising fiscal deficit is unsustainable.

In the Asian Development Outlook 2009 update, the bank lifted the growth forecast for the year to end-March 2010 to 6 percent from earlier 5 percent.

In 2010/11, it expects the economy to grow by 7 percent from the previously estimated 6.5 percent on hopes of better rainfall and a rebound in exports.

In the 2008/09 fiscal year, India's economy grew 6.7 percent, its weakest in six years and well below rates of 9 percent or more in the previous three years.

To offset the pain of the global downturn and stimulate demand, the government stepped up spending and reduced tax rates.

The central bank cut its main lending rate by 425 basis points from October 2008 to April this year and injected massive liquidity into markets.

"The government's strong fiscal stimulus, complementing the Reserve Bank of India's (RBI) aggressive monetary policy easing, has successfully brought last year's economic slowdown to an end," the ADB said.

The RBI expects the economy to grow by 6 percent or more in the current fiscal year. But economists fear a poor farm output, following scanty rainfalls, could shave off the economic growth by as much as 2 percentage points.

Farm output makes about 17 percent of the country's GDP.