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IMF upgrades India growth to 9.4%

IMF upgrades India growth to 9.4%
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First Published: Fri, Jul 09 2010. 12 23 AM IST

Graphic: Ahmed Raza Khan/Mint
Graphic: Ahmed Raza Khan/Mint
Updated: Fri, Jul 09 2010. 12 23 AM IST
New Delhi: The International Monetary Fund (IMF) has raised India’s economic growth forecast for 2010 to 9.4%, continuing to surprise the government and other economists with its optimism.
This is IMF’s third consecutive quarterly upward revision since October 2009. The growth projection for calendar year 2010 has been revised upwards by three percentage points since then. One basis point is one-hundredth of a percentage point.
“I notice that the IMF has recently challenged our prediction,” finance minister Pranab Mukherjee had said on 22 June, referring to the April 8.8% growth forecast. “For once, however, I am not going to argue with the IMF.”
Graphic: Ahmed Raza Khan/Mint
The government’s own economic growth projection for the year to March 2011 is 8.5%.
According to IMF, India’s growth is likely to be driven by corporate investment on account of strong profitability and the easier availability of credit. The international body didn’t give further details on the reasons for its optimism in the report, part of the World Economic Outlook. IMF’s India economist could not be reached for comment.
The finance minister’s sentiments were echoed by another government official after the latest number was announced.
“It comes as a bit of surprise,” Pronab Sen, principal adviser to the Planning Commission, told Mint. “To me, it looks as a bit of overestimation,” added Sen, who was the government’s chief statistician till last month.
India’s Central Statistical Organisation had said in May said that growth in the January-March quarter was 8.6%.
According to Sen, the second and third quarters of calendar year 2010 will register higher growth partly on account of lacklustre performance in the corresponding periods of the previous year. Subsequently, the growth rate could decelerate as the advantage of a low base would disappear.
Another economist associated with the government, who did not want to be named, said a possible reason for IMF’s current optimism was because the agency had begun to “back-pedal” from an earlier assumption.
IMF had estimated previously that the credit squeeze in Western financial markets would have a far greater impact on the Indian industry, the economist said. Once it became apparent that the agency’s initial assumption was incorrect, there have been sharp upward revisions, he added.
Between April and July, IMF has raised its forecast for India’s economic growth by 60 basis points.
Along with India’s growth forecast, IMF has also revised China’s estimate upwards, helping nudge up the global estimate.
It has forecast that the global economy will expand at 4.6% in 2010, against the 4.2% estimated in April. While advanced economies are expected to register a growth rate of 2.6%, emerging and developing economies are projected to grow at 6.8%. China’s economy is expected to grow at 10.5%, an estimate that has been raised by 50 basis points since April.
IMF, which retained India’s 2011 growth forecast at 8.4%, has hedged its current estimates by pointing out that there remain sharp downside risks on account of weaknesses in developed economies.
It cautioned that further spikes in global risk aversion, especially in the euro zone, could precipitate capital outflows from the Asian region and weaken equity valuations. That could, in turn, undermine favourable financing conditions and domestic demand.
A delay in the European recovery may also impact Asia through both trade and financial channels, it said.
Still, the impact of euro zone volatility would be muted, IMF said.
“Asia has only limited direct financial linkages to the most vulnerable euro area economies, but a stall in the European recovery that spilled over to global growth would affect Asia through both trade and financial channels,” it said.
asit.m@livemint.com
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First Published: Fri, Jul 09 2010. 12 23 AM IST
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