IMF revises India’s 2014 GDP growth projection upwards to 5.6 pct

However, the Washington DC-based global body said India should ensure an improvement in investment conditions, remove infrastructure bottlenecks in the power sector. The IMF warned that infrastructure bottlenecks in India are not just a medium-term worry but remain a constraint even on near-term growth. In order to raise competitiveness and productivity, India must implement reforms to education, labour, and product markets, it added.

“India has recovered from its relative slump, thanks in part to effective policies and a renewal of confidence, growth is expected once again to exceed 5% (from 4.7% in 2012 and 5% in 2013),” IMF Chief Economist Olivier Blanchard said at a press conference here ahead of the 2014 Annual Meetings of the IMF and the World Bank Group.

In contrast, however, the IMF, for the third time in 2014, slashed its projections for global economic growth. The IMF WEO report projected world output to grow at 3.3% this year (0.1% down from its July WEO update). It has forecast the world output growth in 2015 at 3.8% (a 0.2% cut from its July forecast).

Among major emerging markets, it said though growth will pick up in India, there will be a modest slowdown in China. Growth in Brazil and Russia will stay subdued, it said, adding that the growth in core euro zone nations will be weaker. Blanchard said the legacies of the financial crisis continue to impact the eurozone. It said the US and Britain, however, are seeing stronger growth.

The IMF said India, during the past year, successfully lowered its vulnerabilities to adverse shocks by adopting tighter macroeconomic policies to reduce inflation and narrow external current account deficits. The IMF said growth in India increased in the second quarter this year thanks to rising business confidence and stronger manufacturing activity since the election.

On inflationary trends that India is likely to experience, the IMF said with recent monetary tightening, disinflation should continue, but inflation overall will remain high at 7.8% in 2014, declining slightly to 7.5% in 2015. As inflation is still high in India, monetary normalization should proceed gradually, it said.

Significantly, on a note of caution, the IMF said sharp tightening of global financial conditions –triggered by greater volatility induced by the US monetary policy normalisation or a spike in global risk aversion — could lead to capital outflows, asset price declines, and higher domestic interest rates in countries like India that depend to a greater extent on external financing.

The IMF projected that by 2019, India’s GDP growth is likely to be 6.7%, returning to what it was in 2011 (6.6%) but way lower than 10.3% growth it achieved in 2011 or the over 9% growth rates in 2006 and 2007.

The IMF said for India, data and forecasts are presented on a fiscal year basis and output growth is based on GDP at market prices. Corresponding growth rates for GDP at factor cost are 4.5%, 4.7%, 5.6%, and 6.4% for 2012/13, 2013/14, 2014/15 and 2015/16, respectively.

Arun S | The Financial Express