IMF projects GDP growth at 6.25%

IMF projects GDP growth at 6.25%
The Financial Express, March 19, 2009, page 1

Economy Bureau, New Delhi

The global slowdown will have a deeper impact on India than previously perceived, though the Planning Commission projections are still optimistic. The International Monetary Fund pared its 2008-09 growth estimate for India to 6.25% on Wednesday, while the Centre’s think-tank expects 2009-10 to see just 5% growth in a worst-case scenario. But the Planning Commission expects the recent fiscal stimulus measures to add 1.5-2% of GDP growth in 2009-10.

Echoing IMF’s concerns, the chief statistician of India, Pronab Sen, flatly dismissed any hope of achieving the official GDP growth projection of 7.1% for 2008-09. “7.1% growth is not achievable,” Sen said. “If you had 5.3% growth (in the third quarter), you are looking at 7.4% growth in the fourth quarter (to have 7.1% for the whole fiscal), which does not seem to be possible”, he said.

Meanwhile, Planning Commission member Abhijit Sen said, “We have done a worst case calculation on the basis of no effect of the stimulus and what we know currently about the world economy, on that basis the worst case scenario is about 5% growth.”

Though Abhijit Sen said the impact of any fiscal stimulus is difficult to calculate, he projected the stimulus effect to be between 1.5% and 2%. “It is an optimistic assessment and will take the growth rate to between 6.5% and 7%,” Sen said, before adding that the economy might require more fiscal stimulus measures.

IMF urged India to ease money supply to fight the economic slowdown while cautioning that additional expenditure and more tax reliefs could raise public debt to unsustainable levels. The tax department is already facing a tough time meeting this year’s revenue targets. Corporate advance tax collections for 2008-09 grew by a mere 17.5% to Rs 1,23,400 crore from Rs 1,05,000 crore last year, latest figures show.

IMF, which concluded its India consultations on March 6, said India’s growth could moderate to 6.25% in 2008-09 and 5.25% in 2009-10. It said corporate investment is expected to slow because of weakening profitability and confidence of companies and tighter financing conditions of foreign and non-bank sources.

“The uncertainty surrounding the forecast is unusually large, with significant downside risks. The main upside risk stems from a larger-than-anticipated impact of the stimulus measures that the authorities have already implemented,” IMF said.

The tax department has netted Rs 3,12,800 crore in direct taxes till Tuesday against a target of Rs 3,45,000 crore for 2008-09.