Washington, Sept 20: International Monetary Fund (IMF) expects India's economic growth rate to moderate to 7.5-7.75 per cent this fiscal, from 8.5 per cent in 2010-11, on account slowing investments and sluggish global recovery.
“In India, growth is forecast to average 7.5 to 7.75 per cent during 2011-12. Activity is expected to be led by private consumption,” IMF said in its World Economic Outlook.
The report was released ahead of the annual meetings of the IMF and the World Bank which, among others, will be attended by Indian Finance Minister Pranab Mukherjee.
Investment, according to the Outlook, “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”.
IMF said that controlling inflation continues to remain a major challenge for India and added that despite a series of rate hikes by the central bank (RBI), credit growth still remains strong.
Inflation has risen to 9.78 per cent in August, much higher than the Reserve Bank of India's comfort zone of 5-6 per cent. In its bid to tame inflation, RBI has hiked key interest rates 12 times since March 2010 by 350 basis points.
RBI and the Prime Minister's Economic Advisory Council expect the country to expand by 8 per cent in the current fiscal ending March 2012.
IMF said the emerging economies have borne the brunt of the global economic crisis and China's GDP growth would average 9-9.5 per cent in 2011-12. This would mainly be on account of policy tightening.
“Investment growth has decelerated with the unwinding of the fiscal stimulus, but it remains the principal contributor to growth,” the World Economic Outlook said.
It said that economic activity in Asia remained solid but moderated somewhat in the first half of 2011 because of the temporary disruption in supply chains from the Japanese earthquake and tsunami, especially in the automotive and electronics sectors.
Some economies in emerging Asia also experienced a slowdown in exports, growth in credit and asset prices in the first half of the year, firm consumer and business sentiment, and strong labour markets, IMF said.
It said that capital flows were sizable until recently, although more volatile in 2011. Also, activity in advanced Asia bounced back fairly strongly after the initial setback caused by the natural disasters.
However, it said that the recent debt crisis in the US and the euro zone could impact the economic growth of Asia.
“The recent volatility in US and euro area financial markets rippled through many Asian equity markets, which if sustained could affect the region's future economic prospects,” the IMF report said.
It projected Asia's growth to decelerate but remain strong and self-sustained, assuming that the global financial tensions do not escalate.
“For emerging Asia, although the slowdown in the United States and Euro area will dampen external demand, domestic demand is expected to continue supporting growth,” IMF said.
In advanced Asia, activity will be boosted by reconstruction investment, it added. PTI
