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Structural challenges to hit India's growth

business Updated: Apr 17, 2013 22:37 IST
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Blaming supply bottlenecks and policy uncertainty for lagging investments, the International Monetary Fund (IMF) on Tuesday warned that "significant structural challenges" would affect India but still projected a higher 5.7% growth this year and 6.2% next year.

Releasing its Global Economic Outlook report, the IMF said that growth in India would rise to 5.7% in 2013, from 4% last year, as a result of "improved external demand and recently implemented pro-growth measures". For 2014, it has projected a GDP growth of 6.2%.

Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy, it said.

It noted that what until now was a two-speed recovery, strong in emerging market and developing economies but weaker in advanced economies, is becoming a three-speed recovery.

Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the US on one hand and the euro area on the other, the Global Economic Outlook report said.

"Significant structural challenges will likely lower potential output over the medium term and also keep inflation elevated by regional standards (in India)," it said.

IMF also put the blame on "supply factors, such as infrastructure or labour market bottlenecks, and domestic policy factors, such as policy uncertainty and regulatory obstacles" for the recent stalling of investments in countries like India, Brazil and Russia.

It also projected a modest improvement in global economic growth rate to 3.3% in 2013, from 3.2% last year, on the back of improving trends in emerging markets.

As per the report, growth has already returned to a healthy pace in China, while "external demand, solid consumption, a better monsoon season, and policy improvements are expected to lift activity in India".

As per IMF projections, inflation pressure is projected to remain overall contained in emerging market and developing economies, supported by the recent slowdown and lower food and energy prices.