The International Monetary Fund (IMF) has lowered the growth projection for India to 3.8 per cent in 2013-14. This is sharply lower than the 5.6 per cent growth projection it had made in July.
However, a strong recovery in exports can push up the growth to over 5 per cent, the Fund said in its World Economic Outlook. .
These numbers are based on market price, which is the global practice. However, Indian policymakers use ‘GDP at factor cost’ to measure growth. Accordingly, the GDP projection for 2013-14 and 2014-15 will be 4.25 per cent and 5 per cent, respectively.
IMF’s revision was based on “lacklustre activity in manufacturing and services,” and the prevailing higher interest rates, which have made things difficult for industry. It warned that that emerging Asian economies, including India, were at continued risk of a global slowdown and outflows of foreign capital from their financial markets. “Capital outflows, due to a further tightening in US monetary conditions or deteriorating domestic fundamentals, could intensify,” it said.
The report also said that in India and Brazil, infrastructure and regulatory bottlenecks slowed output in the face of a still strong domestic demand. As a result, external pressures have grown in these economies, it said. More tightening may be needed to address continued inflation pressure from capacity constraints, which will likely be reinforced by recent currency depreciation, the report said.