IMF blames governance for poor investor sentiment in India

IMF blamed governance issues for weakening business sentiments in the country.

Written by ENS Economic Bureau | New Delhi | Published: April 28, 2012 1:01:08 am

The International Monetary Fund on Friday blamed governance issues for weakening business sentiments in the country.

“Concerns about governance and slow project approvals by the government have weakened business sentiment,which in turn has adversely affected investment,along with cyclical factors such as global uncertainty and policy tightening,” the IMF said in its Asia-Pacific Regional Economic Outlook released on Friday.

The IMF’s concerns come at a time when global rating agencies such as S&P and Moody’s have raised red flags over the deteriorating economic conditions in India. While S&P has downgraded India’s rating outlook to negative,Moody’s has blamed the political situation for weighing down on the economy.

Recently,the finance ministry’s chief economic advisor Kaushik Basu also pointed towards a policy paralysis in the government by saying that any big ticket reforms may not be possible before 2014 — but it was a statement that he retracted.

Noting that domestic factor splayed a key role in the economic slowdown in the second half of 2011,the multilateral agency also lowered India’s growth forecast to 6.9 per cent from its January estimate estimate of 7 per cent.

“In India,the lowered growth outlook in 2012 owes much to a slowdown of investment which partly reflects structural factors,” it said. However,the multilateral agency has retained India’s growth estimate at 7.3 per cent for 2013. As per the IMF,the national economy grew 7.1 per cent last year.

According to the IMF,steps to improve investment climate,remove infrastructure bottlenecks and expand education opportunities,are needed to boost reforms. “It is also important for India to make progress in reducing barriers to trade,in order to maximise the potential of its continuing demographic dividend,” IMF said.

On price rise,the multilateral agency stressed that fiscal consolidation is the key to containing inflationary pressures and creating space for priority development needs.

The agency is,however,more upbeat about its growth outlook for Asia at about 6 per cent in 2012 and 6.5 per cent in 2013. “Growth in Asia is expected to pick up this year,after slowing in the last quarter of 2011,but Asian policymakers now face the challenging task of adjusting policies to support stable,non-inflationary growth,” it said.

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