Contrary to what statistics juggling politicians would have you believe, the International Monetary Fund (IMF) says that the global economic slowdown will continue to hit growth in India for at least the next two fiscals.
Attributing the climb down in growth rate to the global financial environment and plummeting investor confidence, the IMF projections suggest that the GDP will hover at around 6.25 per cent in 2008-09 before plummeting to 5.25 per cent in 2009-10.
“After five years with average growth of 8.75 per cent, India’s economy is slowing,” said the IMF in a paper on the IMF Executive Directors’ assessment after the annual Article IV Consultation with India.
“Corporate investment — the major growth driver during recent years — is expected to slow because of weakening profitability and confidence, and tightening of financing conditions from foreign and non-bank sources.”
On an optimistic note the IMF added: “Policy measures to stimulate the economy and a good harvest should support domestic demand.”
“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,” says the report.
The Fund cautions that large expansions of the country’s deficit could cause concerns of economic sustainability, especially as the country’s debt as a percentage of GDP was already high.
The Fund further said that any additional stimulus should be focused on “high-quality infrastructure and poverty-related spending” or to recapitalize banks if needed.