IMF lowers export forecast

The International Monetary Fund (IMF) has lowered its real export growth forecast for India for 2008 to 13.2 per cent from its April forecast of 16.3 per cent.

In its Regional Economic Outlook for Asia and the Pacific released today, the IMF also reduced its export forecast for 2007 to 9 per cent compared with the earlier projection of 14.2 per cent.

The commerce ministry has set a target of $160 billion exports for financial year 2007-08, a growth of 27 per cent over last year, while the Economic Advisory Council to the prime minister has fixed a lower target of $147 billion.

However, the IMF has increased the investment growth forecast for India to 14.5 per cent in 2007 from its earlier projection of 13.9 per cent.

For 2008, the projection has been revised to 13.1 per cent from the 10.7 per cent forecast in the month of April. The fund saw the private consumption growth in India at 5.8 per cent in 2007 and 5.7 per cent in 2008.

"India's growth appears to be on a solid footing and confidence remains high. This buoyancy has benefited from strong investment and productivity gains, which have translated into higher potential growth. Consumption and net exports remain strong, but their contribution to growth has eased recently," said the IMF.

The IMF had recently marginally reduced its GDP growth forecast for India to 8.9 per cent for 2007 from its earlier projection of 9 per cent.

However, for 2008, the IMF has retained its growth forecast of 8.4 per cent for India.

The IMF said credit and asset price growth remained rapid in India despite some cooling in recent months. It also said the current account deficit in India remains small while the country is growing at close to 9 per cent a year and the deficit remains readily financed by private flows.

"Indeed, overfinancing of the deficit in recent years has led to a large accumulation of foreign exchange reserves," it held.

However, on the credit and asset boom, the IMF said that though the medium-term challenges for India are real, "The short-term vulnerabilities should not be overstated."

The IMF said in India, there were positive "but statistically insignificant" response to the exchange rate intervention by the RBI unlike most countries in the Asia-Pacific market where there was no direct evidence of higher intervention leading to more depreciated exchange rate.

It held that the absolute monthly intervention by the RBI during the period 2005-07 averaged 11 per cent of daily foreign exchange market turnover.