IMF lowers India GDP forecast on global woes, infra bottlenecks

Written by fe Bureau | New Delhi | Updated: Oct 9 2013, 08:53am hrs
The International Monetary Fund on Tuesday sharply lowered Indias growth forecast for 2013-14 and 2014-15 as the global economy continued to remain weak while infrastructure and regulatory bottlenecks slowed the countrys output despite strong domestic demand.

Indias GDP growth in dollar terms is estimated at 3.8% in 2013, lower by 1.8 percentage points from the July projections. While growth is expected to pick up to 5.1% in 2014, but will still be much lower than 6.3% recorded in 2011, IMF said in its World Economic Outlook report.

Indias potential (growth) has been undermined by supply bottlenecks arising from problems in the regulatory framework for mining, energy, telecommunications and other sectors; a consequent slowdown in permits and project approvals; and overstretched corporate balance sheets, the Fund said. The infrastructure and regulatory bottlenecks slowed output in the face of still-strong domestic demand, it added.

Global GDP growth is estimated to lower by 0.3 percentage point to 2.9% in calender 2013 and by 0.2 percentage point to 3.6% for 2014, as advanced economies have recently gained some speed while the emerging market economies have slowed. While the growth forecast for advanced economies remain unchanged at 1.2% in 2013 and 2% in 2014, the EMEs are expected to grow 4.5% and 5.1% respectively powered by Chinas 7% plus expansion.

Though growth has slowed in EMEs like India, IMF said monetary policy responses will need to consider inflationary pressures and policy credibility. In a number of economies, including Brazil, India, and Indonesia, more tightening may well be needed to address continued inflation pressure from capacity constraints, which will likely be reinforced by recent currency depreciation, it said. IMF forecast consumer price inflation in EMEs to remain elevated at 6.2% in 2013 and 5.7% in 2014 even though oil prices are set to remain subdued.

Finmin expects recovery in second quarter

Following three quarters of sub 5% growth, the GDP growth is expected to pick up from the second quarter of 2013-14, resulting in full year growth of around 5.5%, according to a finance ministry report released on Tuesday.

This is lesser than what the Economic Survey had anticipated, which was growth in the range of 6.1 to 6.7% for the fiscal.

The quarterly review 2013-14 (April-June) said the economy registered a growth rate of 4.4% in the first quarter (Q1) of 2013-14 as against 5.4% in the first quarter of 2012-13.

This is also the lowest growth rate since Q4 of 2008-09 when the growth rate was 3.5%, it added. The main factor behind the low growth is the near stagnant industry sector that registered a growth of 0.2% in Q1 of 2013-14 over Q1 of 2012-13. Within the industry sector, the mining and manufacturing sectors registered negative growth, the report said.

Apart from the slowdown in the industry sector, one of the major contributors to the recent slowdown has been the low growth in the trade, hotels, transport & communications segment of the services sector, it said.

This sub-sector accounts for nearly 28% of the total GDP (its share is more than that of the entire industry sector) and the 3.9% growth witnessed in this sub-sector, to a great extent explains the low growth of 4.4%.