Suggesting further monetary tightening measures to control inflation, the International Monetary Fund (IMF) has scaled down India’s economic growth to 7.8 per cent this year, against the earlier estimates of 8.2 per cent. The revision is attributed by the IMF partly to slower economic expansion in world output and to recent corporate governance issues.
Similarly, growth projections for India has been revised downwards to 7.5 per cent in 2012, against the earlier forecast of 7.8 per cent.
In its latest World Economic Outlook, IMF said India along with Argentina and Russia requires higher monetary tightening than other countries which are in a position to postpone such a move. This was so because consumer prices are estimated to rise at an elevated level of 10.6 per cent on an average in 2011 year-on-year, even though it is less than the 12 per cent a year ago. However, the rates were expected to rise at 8.6 per cent in 2012.
The rise of consumer prices in India could be gauged from the fact that IMF projected developing Asia to witness just seven per cent inflation in 2011. “A key challenge for policymakers is to bring down inflation, which is running close to double digits and has become generalised. Despite policy tightening, real interest rates are much lower than pre-crisis averages, and credit growth is still strong,” said IMF.
The Reserve Bank of India has tightened policy rates 12 times since early 2010 to cool down inflation. World economic growth is expected to grow by four per cent this calendar year, against 4.3 per cent projected earlier and four per cent again in 2012 against 4.5 per cent.
“The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently and downside risks are growing,” IMF said. The report clearly said that debt crisis in the Euro zone runs beyond the control of policymakers. Besides, economic activity in the United States may grow at slower rate, it added.
IMF said commodity prices, global trade and capital flows would likely decline abruptly, dragging down growth in both emerging and developing economies. According to government estimates, the Indian economy grew 7.8 per cent in the first quarter and 7.7 per cent in the second quarter of this year. However, India estimates GDP growth by excluding indirect taxes, what is called in technical jargon as GDP at factor cost, while IMF estimates it by including indirect taxes, what is known as GDP at market prices.
IMF said activity in India is expected to be led by private consumption. “Investment is expected to remain sluggish, reflecting, in part, recent corporate sector governance issues and a drag from the renewed global uncertainty and less favourable external financing environment.”
