IMF projects India to grow by 7.5-7.75% in 2011-12

On the back of weak recovery in the global economy, the International Monetary Fund (IMF) expects Indian economy to grow by 7.5% to 7.75% in 2011-12. The projection made by IMF is on the line of Reserve Bank of India (RBI) and Prime Minister’s economic advisory council, which expects India to grow close to 8% in 2011-12. 
 
The IMF has scaled down India’s economic growth for the calendar year 2011 and 2012. It expects India to grow by 7.8% in 2011 against the earlier estimates of 8.2%, and 7.5% in 2012 besides the earlier estimate of 7.8%. This downturn revision in growth forecast was done because of the weak expansion in global economy and recent corporate governance issue. The IMF has also scaled down the growth projections for world economy from 4.3% to 4% for 2011 and it expects economy to grow by 4.5% in 2012.

‘In India, growth is forecasted to average 7.5-7.75% during 2011-12. Activity is expected to be led by private consumption. Investment is expected to remain sluggish, reflecting, in part, recent corporate sector governance issues and a drag from the renewed global uncertainty and less favorable external financing environment,’ IMF said. By adding further IMF said that a key challenge for policymakers is to bring down inflation, which is running close to double digits and has become generalized. Despite policy tightening, real interest rates are much lower than pre-crisis averages, and credit growth is still strong.

In its latest World Economic Outlook report, the IMF said India along with Argentina and Russia requires higher monetary tightening than any other countries which are in a position to postpone such a move. However, IMF expects decline in India’s consumer price index from elevated level of 12% in 2010 to 10.6% in 2011 and 8.6% in 2012. However, India’s consumer prices are higher than the other developing nations like China and South Korea.

The IMF’s projection of consumer prices for developing Asia (India and China) for the current calendar year is around 7% and for 2012 it expects it to moderate to 5.1%. In order to tame inflation, the RBI has increased its short term lending and borrowing rates by 12 times in last 18 months, which has adversely affected the overall investment scenario hence affecting the growth. India’s economy in the first quarter of 2011-12 grew by its slowest pace in last six quarter. It grew by 7.7% in April-June 2011 from 8.8% in April-June 2010. For the current financial year, all the major agencies including RBI have done downward revision in India’s economic growth for current financial year.