IMF projects 7.5 to 7.75 per cent growth for India

Washington: The International Monetary Fund (IMF) said that India would have a year-on-year projected growth rate of 7.8 per cent in 2011 and 7.5 per cent in 2012, even as it warned of overall slowing global activity, renewed financial instability and an uneven post-recession expansion.

Releasing its semi-annual World Economic Outlook report on September 19, the IMF said that in India, growth was forecast to average 7.5-7.75 per cent during 2011–12 and while economic activity driving this growth would be led by private consumption, “investment is expected to remain sluggish, reflecting, in part recent corporate sector governance issues and a drag from the renewed global uncertainty and less favourable external financing environment.”

The IMF argued that a top challenge for policymakers in India would be to dampen the rise of inflation, which is currently running close to double digits and has become generalised. The WEO noted that despite policy tightening, real interest rates in India were still much lower than pre-crisis averages and credit growth was still strong.

Commenting on its macro assessment of the ongoing global recovery, the IMF suggested that some elements of this bounce had been anticipated while others had not. For example it said that while the strong cyclical rebound in global industrial production and trade in 2010 was ‘never expected to persist,’ in crisis-hit advanced economies, especially the United States, the ‘handover from public to private demand’ was taking longer than anticipated.

Further sovereign debt and banking sector problems in the Euro area were much more tenacious than anticipated and similarly the disruptions resulting from the East Japan earthquake and tsunami, as well as the spreading unrest in the Middle East and North Africa region and the related surge in oil prices, “were major surprises.”

Possibly hinting at the market turmoil linked to the unresolved debt-limit negotiations between the White House and the U.S. Congress, the Fund cautioned that policy indecision has “exacerbated uncertainty and added to financial strains, feeding back into the real economy.”