India’s growth could dip to 6.25% in 2008-09: IMF

India’s growth could dip to 6.25% in 2008-09: IMF
Times of India, March 19, 2009, Page 21

Washington: The IMF on Wednesday advised India to initiate more monetary steps to battle the country's slowing economic growth, which the international multilateral agency expects to moderate to 6.25% in the current financial year (2008-09) and fall further by one percentage point in 2009-10.

The Times of India had first reported in its February 28 edition that government's estimate of 7.1% GDP growth for 2008-09 may not be achieved after Q3 (October-December) figure revealed that growth has dipped to 5.3%.

With inflation softening to a six-year low of 2.43%, there is scope for further easing of monetary policy, the IMF said in its review of the economy following Article IV consultations with the Indian authorities. "A number of (IMF) directors saw scope for further monetary easing, in (the) light of the projected decline in inflationary pressures and the need to reinforce confidence and sustain bank credit," the review said.

The IMF expects average inflation to moderate to 2% in 2009-10 from about 8.8% in the current financial year. Inflation has been coming down consistently after touching a peak of 12.9 per cent in August last year. The GDP growth rate in the current fiscal has been projected at 6.25% by the IMF, as against the government's forecast of 7.1 per cent. The IMF expects the growth rate in 2009-10, to fall to 5.25%.

As part of the annual exercise to review the economies of the member countries, the IMF's executive board had held consultations with the Indian authorities on February 6. While suggesting that India focus on monetary measures, the IMF cautioned that additional expenditure and more tax reliefs for fighting economic slowdown could raise public debt to unsustainable levels. Noting that the key short-run policy objective should be to sustain liquidity and credit flows, the review said "monetary and structural policies will have to continue to carry most of the burden of adjustment".

The "sizeable fiscal stimulus" of 2008-09 would support economic growth in India, the review said, adding, "given the high ratio of public debt to GDP, significant further expansion of the deficit could raise concerns about fiscal sustainability". AGENCIES