IMF projects 7.9% growth rate for India in 2008
In the backdrop of the global financial turmoil, IMF on Thursday projected that Indian economic growth rate would slip to 7.9 per cent in 2008 from 9.2 per cent in the previous year.
In 2009, the Indian economy will expand at slightly higher rate of 8 per cent, stated IMF's World Economic Outlook, released in Washington. The report further said weak export demand and higher financing costs will dampen the growth of private investment, the key driver of growth.
The impact of global financial turmoil following US sub-prime crisis, the cost of which is estimated at one trillion dollars by the IMF, will be less in case of emerging economies in the East as compared to developed nations.
Growth in consumer prices, which has been rising alarmingly in the recent past, in India is expected to moderate to 5.2 per cent in 2008 and four per cent in 2009. It was 6.4 per cent in 2007.
IMF growth projections for India are in line with other think tanks, including the Prime Minister's Economic Advisory Council that expected the economic growth rate to moderate to 8.5 per cent during 2008-09 against projections of 8.7 per cent for the previous fiscal.
IMF also projected slowdown in growth rate in emerging Asia to 7.5 per cent in 2008 from a high of 9.1 per cent in the previous year. In case of China, the GDP growth rate is expected to slip to 9.3 per cent from 11.4 per cent in 2007.
IMF attributed the moderation in the Indian economy during the second half of 2007 to slowdown in consumption in response to tight monetary policy of the Reserve Bank, although investment continued at a brisk pace.
However, in 2008 even private investment will take a hit on account of weak demand of goods from overseas buyers and rising interest costs.
On the positive side, IMF said monetary tightening has led to easing of inflation, which has again picked up in 2008 owing to rising commodity prices.
Inflation rate, as measured by wholesale price index, has shot up to three-year high of seven per cent during the week ended March 22.
The policy makers, the IMF said, would need to respond flexibly to "evolving developments, with some scope for monetary policy easing".
In light of uncertainties in the global market place, it said, "policy makers face a difficult task in balancing the trade offs between growth and inflation".
This assumes significance in case of India as RBI is to unveil annual credit policy on April 29 and will be required to balance the need for containing inflation and boosting growth.
In the case of countries like India, Pakistan and the Philippines, it suggested that efforts at fiscal consolidation should continue to remain an important priority.