A year ago, the International Monetary Fund (IMF) forecast that the world economy would grow 2.5 per cent during 2010. Last October, it raised that number to 3.1 per cent. By January this year, the Fund had become positively optimistic, raising its global growth forecast to 3.9 per cent. That was raised further to 4.2 per cent in April, and has now been pegged at 4.6 per cent — which would make it a boom year. That’s a good distance to cover for any forecaster. As for India’s growth, the IMF has travelled an even greater span. It raised its 2010 projection from 6.4 per cent a year ago to 7.7 per cent six months ago, then to 8.8 per cent in April. It has now pegged the figure at 9.4 per cent, a level of optimism that has taken the government pleasantly by surprise since its own spokesmen have hesitated to go much beyond 8.5 per cent.
The stock market went up following the latest forecast, but both investors and economists should know that the IMF’s crystal ball is quite cloudy. Its forecasts seem to follow the latest round of economic data rather than look ahead. Thus, shortly after the financial crisis unfolded in the United States and Europe, the IMF projected global growth in 2009 at 1.7 per cent. Two months later, it knocked that figure down to 0.5 per cent, only to change its forecast three months later to a global economic recession, with economic activity declining by 1.3 per cent. Its assessment of India’s own performance through the rocky period of 2008-09 has been consistently pessimistic, with the reality being better than the forecasts.
That is not to say that the IMF may not prove right this time round. India’s growth in the January-March quarter was 8.6 per cent, and the government’s forecast for April-June is 8.9 per cent. The last quarter of the calendar year (i.e. October-December) will get the kicker of a good kharif, following the better monsoon this year, and all the indicators for the non-agricultural economy are positive. Business confidence is high, and is being translated into substantial investment commitments, consumer spending has been rolling along, and the industrial growth numbers are positively flattering. Export growth will continue through the current quarter to benefit from the low base numbers for 2009. In short, there is nothing to prevent the economy from registering double-digit growth in the coming six months.
Sentiment could be dampened by the internal security challenges in different parts of the country. On the positive side, the government has shown signs of life when it comes to reform measures; the revamped direct taxes code (admittedly without the conceptual clarity of the original, but more palatable to most people) is on the legislative agenda, there is some activity on the GST (goods and service tax) front, and the discussion paper on allowing foreign investment in multi-brand retailing suggests that an irrational ban will be removed. The biggest negative, of course, continues to be the state of the physical infrastructure, the new Delhi airport terminal notwithstanding.
