IMF predicts a slower growth rate for India

The International Monetary Fund (IMF) has projected a slower growth rate for India in the fiscal year 2008-09 and 2009-10 to 6.25% and 5.25% respectively as against the government estimation of 7.1% and 6.5-7%.

Partly reflecting the deteriorating picture of global economic turmoil, IMF said in its latest statement on Tuesday that India cannot sustain its previous growth rate at this momentum and it would further slow down in the next fiscal year too.

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IMF, however, appreciated India’s strong economic performance in recent year, which was growing at the second fastest rate after China in the world.

‘India confronted the current global financial crisis from a position of strength, which reflected its sound macroeconomic policies and continued progress with structural reform,’ said the IMF Executive Board in their assessment after their annual Article IV Consultation with New Delhi on Tuesday.

According to a summary of IMF report released Tuesday, ‘the directors believe that a key short-run policy objective should be to sustain liquidity and credit flows. The monetary and structural policies will have to continue to carry most of the burden of adjustment, given the high public debt-GDP ratio.’

In view of current economic infrastructure and growth situation, the directors were divided in opinion, as some believe that India should further ease its monetary policy due to decline in inflation rate in order to boost the demands and growth rate. They welcomed RBI’s move to cut the loan interest rate, while some members viewed other lobby of directors believe that India should adopt 'wait and watch policy' approach and first evaluate the performance of earlier rate relief.

The IMF supported India's flexible exchange rate policy that enable India to adjust its economic condition above the global turmoil but also stressed on rising credit risk and liquidity pressures that could put the financial system under strain.

In this solution, the international organisation has encouraged the authorities to take additional preventive action, including identification of potential bank re-capitalization needs and measures to promote early loss recognition, full disclosure of bad assets, and filling of information gaps.