India GDP seen growing at 8 pc

IMF says it will rise 7.7 pc in 2011-12

“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 advance economies grow below trend,” IMF said in its latest paper issued after consultation with Indian authorities.

IMF however, forecasts a moderately lower growth rate for the 2011-12 fiscal at 7.7 percent. For the current fiscal, IMF said the economy would grow by 6.7 per cent, much lower than the 7.2 per cent projected by the Central Statistical Organisation (CSO).

Areas of concern
The major areas of concern, according to IMF, are the rising inflation and high fiscal deficit. “On the downside, the main risks are elevated inflation and financing constraints... arising from the fiscal deficit, which could stall the recovery,” its paper said.
Wholesale price inflation was at 9.89 per cent in February, much higher than the Reserve Bank of India’s March-end projection of 8.5 per cent.

Besides, IMF added, that the other risks include asset price bubble and the possibility of a sudden stoppage of foreign capital inflows caused by turmoil in global financial markets.
Further, the multilateral agency said that the medium-term growth prospects of the country remain bright and the economy is well balanced and mainly reliant on domestic drivers, adding that an acceleration of reforms and capital inflows could spur investment.
The Fund said 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. IMF also said that rupee appreciation would contain inflation and may allow RBI to keep interest rates low for longer. “Emerging inflation pressures and a weak fiscal position are bringing policy trade-offs to a head earlier that in other countries,” it added.

High inflation is fuelling debate on when RBI should tighten monetary policy, it said,  adding “conditions are now ripe for a gradual withdrawal of monetary accommodation to anchor inflation expectations.”
It also added that inflation will peak in early next fiscal and is likely to remain elevated over the near-term.
Press Trust of India

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