E-Paper
Why IMF forecasts may not be right
The world is stepping out of the deepest recession since World War II within a year of being plunged into it, thanks to the largest coordinated bailout in history, writes Gaurav Choudhury.
The world is stepping out of the deepest recession since World War II within a year of being plunged into it, thanks to the largest coordinated bailout in history. The International Monetary Fund (IMF) said Asia is pulling far ahead of the rest, but its assessment of India’s economy appears understated.
The IMF retained its projection for Indian economic growth at 5.4 per cent in 2009. This implies that growth would be slower during July to December.
Gross domestic product (GDP) for April to June quarter grew 6.1 per cent, up from 5.8 per cent in the previous quarter. For IMF’s projections to come true, India’s GDP would have to grow at an average of 4.85 per cent during July to December --- an unlikely scenario given recent macro-economic data that mirrored signs of a recovery.
Industrial output rose by 6.8 per cent in July, with manufacturing, which accounts for 80 per cent of overall industrial output, growing by 6.8 per cent. But the real story lay in the consumer durables sector that galloped ahead at a healthy 19.8 per cent — implying private consumer demand is reviving growth through increased purchases of refrigerators and televisions.
“Indian think-tanks including National Council for Applied Economic Research (NCAER) have always been optimistic about growth here,” said Suman Berry, director general, NCAER.
“Investment seems to be reviving and that is a positive sign.”
The RBI, whose projections are considered to be the most conservative, has maintained an overall growth of more than 6 per cent, while the finance ministry has been consistent with a 6 per cent plus forecast. Professional forecasters and think tanks have projected a growth rate of about 6.5 per cent.
The divergence between projections given by IMF and domestic agencies is because IMF bases its forecasts on consultations with governments that are concluded a few months before the updates are released.
Two big worries — plunging exports and deficient rainfall — continue to haunt policymakers, although the none of these are strong enough to drag down overall growth to less than 5 per cent in last 6 months. “The key near-term risk to the growth trajectory emanates from poor monsoon rainfall,” said Rajeev Malik, economist of Macquarie Securities.
