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  3. India’s economic growth may decline to 5.4% in 2012-13: IMF

India’s economic growth may decline to 5.4% in 2012-13: IMF

07 Feb 2013 Evaluate

The International Monetary Fund (IMF) has said that Indian economy may post a more-than-expected fall in its economic growth to 5.4 percent in 2012-13, but it should pick up to six percent in the next financial year. While, releasing its annual country report, IMF said that ‘In 2011-12, India's growth rate was 6.5 percent. That figure is expected to drop to 5.4 percent in 2012-13. Despite the poor outlook for the global economy, this is a far larger drop than might be expected’.

As per the IMF report, India's economic growth has slowed down due to structural, cyclical, supply side and global factors, while the inflation remains at elevated levels. Elaborating the reasons for the economic slowdown, IMF said that the use of countercyclical fiscal or monetary policy is inappropriate for India. Further it added that the government has already moved to lower fuel subsidies, which disproportionately benefits richer people. In the prevailing economic slowdown, falling infrastructure and corporate investment are now sweeping to exports and private consumption, it added.

Cautioning about the financial sector, IMF report stated that the number of non-performing loans has risen recently and due to the current economic slowdown this trend will continue for some time. Further, to push this sector towards growth in the long run, it recommended the need of financial reforms like lowering government-mandated purchases by banks of government debt and corporate bond market. 

Regarding the 12th five year plan (2012-17), IMF said that reforms taken in plan to facilitate investment especially in infrastructure together with lower costs to do business, are key to restoring high growth. However, IMF praised the recently taken measures by the government and said that in recent months, the authorities have taken steps to reverse the slowdown, which have led to improved market sentiment.

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