IMF projects India to grow by 8 per cent next fiscal

IMF projects India to grow by 8 per cent next fiscal

Agriculture is likely to contract by about one per cent in 2009-10 due to the drought, the IMF said on the conclusion of the IMF's Executive Board consultations with India on January 25. But non-farm GDP growth is expected to gather momentum.
"Prompt fiscal and monetary easing, combined with the fiscal stimulus already in the pipeline and the return of risk appetite in financial markets, have brought growth close to pre-crisis levels," it said.

"With India's long-term prospects remaining strong and private sector balance sheets sound, we expect growth to be back at potential in 2010-11 even if advanced economies grow below trend," the IMF said.

IMF's rather conservative estimate comes days after the Reserve Bank of India projected 7.5 per cent growth in this fiscal, higher from its earlier estimate of 6 per cent, in its quarterly monetary policy review.

RBI upped its growth projection after the economy grew by a stunning 7.9 per cent in the third quarter of 2009.

The finance ministry's mid-term review of the economy too gave an optimistic projection of 7.75 per cent for the current fiscal.The multilateral lending agency said generally conditions are ripe for a progressive normalisation of the monetary stance.
Most of the IMF directors have advised that there be a "timely start of the withdrawal of monetary stimulus, which would help anchor inflation expectations and soften the impact on long-term interest rates".

The IMF directors have "encouraged the authorities to phase out regressive subsidies and introduce market-based pricing for petroleum products".
According to the report, the directors have supported the RBI approach to use prudential measures in case asset bubbles are to develop. "Given the need to develop India's financial markets, several directors advised a tightening of capital controls only as a last resort," the IMF said.

As per the report, high inflation and financing constraints, arising from high fiscal deficit and others, could put breaks on the recovery.
"Tail risks include asset price bubbles and a sudden stop in capital inflows caused by turmoil in global financial markets," it added.

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