New Delhi, Sept. 17 (PTI): The Asian Development Bank (ADB) has raised its projection for India’s economic growth to 8.5 per cent during 2007-08 despite a slowdown in industrial growth in July. The Manila-based bank had earlier forecast a growth rate of 8 per cent for the current fiscal. For 2008-09, the bank expects the Indian economy to maintain the 8.5 growth rate, an upward revision from the 8.3 per cent projected earlier.

However, the ADB warned of inflation risks mainly because of food prices and predicted that inflation would remain steady at 5 per cent in the two fiscals.

“Robust investment, buoyant industrial expansion and moderate agricultural growth will ensure that India’s economy remains on a solid growth path in 2007 and 2008,” the bank said in its Asian Development Outlook 2007.

The Indian economy grew 9.3 per cent during the first quarter of this fiscal and 9.4 per cent in 2006-07, the highest in the past 18 years.

The report warned that inflation risks persist and any shock to food prices could stoke price pressure.

“While the Indian economy has moved to a higher growth trajectory, a major challenge for policymakers is to find ways to expand the market-based reforms so that the benefits flow to all sections of the population,” ADB chief economist Ifzal Ali said.

The report said accelerating growth and capacity bottlenecks have piled pressure on prices that are also feeling the heat from fast rising prices for imported foodstuffs. Indian consumers are still being shielded from the costs of oil in the international market.

The ADB has also raised growth projection for China’s economy to 11.2 per cent this year, up from an earlier estimate of 10 per cent. The ADB report said the Reserve Bank of India, while ensuring that the credit and interest rate environment supports exports and investment demand, is successfully containing inflation pressures.

“Higher interest rates have not dampened business investment as a very buoyant long-term economic outlook has outstripped a cyclical rise in borrowing costs,” Ali said.