The International Monetary Fund (IMF) today lowered its projection of India's growth rate to 3.75 per cent in 2013 from 5.7 per cent estimated earlier on account of poor demand and weak manufacturing and services sector performance.
The IMF, in its latest World Economic Outlook report, also said India is among the economies that may require more tightening to address inflation pressure.
"In India, growth in fiscal year 2013 is expected to be around 3.75 per cent, with strong agriculture production offset by lacklustre activity in manufacturing and services, and monetary tightening adversely affecting domestic demand," the IMF said.
"For fiscal year 2014, growth is projected to accelerate somewhat to 5 per cent, helped by an easing of supply bottlenecks and strengthening of exports," according to the report released on the sidelines of the IMF and World Bank meetings here.
In April, the IMF estimated India's GDP would expand at 5.7 per cent in 2013 and at 6.2 per cent the following year, indicating the country's declining growth had bottomed out.
In terms of GDP at factor cost, India's growth is estimated to be 5 per cent in fiscal year 2012, at 4.25 per cent in 2013 and at about 5 per cent in 2014, it noted in the latest report. In 2012, India's growth rate was 3.2 per cent, while in 2011 it was 6.3 per cent.
According to the IMF report, in India and Brazil, infrastructure and regulatory bottlenecks slowed output supply in the face of still-strong domestic demand. As a result, external pressures have grown in these economies, it said.
In economies, including India, Brazil and Indonesia, more tightening may be needed to address continued inflation pressure from capacity constraints, which will likely be reinforced by recent currency depreciation, the report said.
The Asian Development Bank on October 2 lowered India's growth projection for 2013-14 to 4.7 per cent from 6 per cent. Last month, the Prime Minister's Economic Advisory Council cut its growth forecast for this fiscal to 5.3 per cent from 6.4 per cent.
The IMF said growth in China is projected to decelerate to 7.5 per cent this year, in line with the authorities' target, and further to 7.25 per cent next year.
"Policymakers have refrained from further stimulating growth, which is consistent with the objectives of safeguarding financial stability and moving the economy to a more balanced and sustainable growth path," it said.
The report said growth in Asia during the first half of 2013 generally moderated and was weaker than anticipated in the April outlook. This was due to a more rapid slowdown in China's pace of growth, which affected industrial activity in much of emerging Asia, including through supply-chain links, while India faced persistent supply-side constraints.
By contrast, Japan was the main bright spot, reflecting the new policy momentum, which has boosted asset prices and private consumption, it said.
The report said global growth is in low gear, the drivers of activity are changing and downside risks persist.
"China and a growing number of emerging market economies are coming off cyclical peaks," it said, adding that their growth rates are projected to remain above those of advanced economies but below the elevated levels seen in recent years, for both cyclical and structural reasons.
The report said global activity is expected to strengthen moderately but risks to the forecast remain to the downside.
"The impulse is projected to come from the advanced economies, where output is expected to expand at a pace of about 2 per cent in 2014, about 0.75 percentage point more than in 2013," it said.
Drivers of the projected uptick are a stronger US economy, an appreciable reduction in fiscal tightening and highly accommodative monetary conditions. Growth in the euro area will be held back by very weak economies in the periphery, it said.
"Emerging market and developing economies are projected to expand by about 5 per cent in 2014, as fiscal policy is forecast to stay broadly neutral and real interest rates to remain relatively low," the report said.
The IMF report said emerging market and developing economy growth rates are now down some 3 percentage points from 2010 levels, with Brazil, China and India accounting for about two-thirds of the decline.
"Together with recent forecast disappointments, this growth decline has prompted further downgrades to medium-term output projections for emerging market economies.
Projections for 2016 real GDP levels for Brazil, China and India have been successively reduced by some 8 to 14 per cent over the past two years," it said.