‘IMF forecasts India’s growth below potential’

‘IMF forecasts India’s growth below potential’

Washington: Appreciating measures taken by India to deal with the global financial crisis, the IMF has said the 6.3% growth forecast for the country is considerably below its potential growth.

“For India we have marked our forecast down to 6.3% of 2009 calendar year. That is considerably below what we consider to be India’s potential growth," IMF deputy director for Asia Pacific region, Kalpana Kochhar said.

“There is a specific meaning to “potential" - it is the rate at which you can grow without causing inflation. And for India we estimate that to be 7.5% to 8%. Our forecast of 6.3% would put it quite a bit below the potential," Kochhar added.

Kochhar was talking in the context of the latest update issued by the Fund on the Global Economic Outlook which spoke of a deep dive in the economic growth of several advanced countries as well as countries in the Asia Pacific taking a hit on account of the global financial tumult.

She said that measures taken by the Indian government and the RBI to tackle the financial crisis were in right direction.

“We have a forecast for Asia which is basically strong relatively speaking. We have around 5% which is slow for Asia but not relative to other emerging markets. That is because Asia is open and so linked to the US, the Euro area and Japan which are all experiencing significant contractions,“ she said.

The drive down in the value of the Indian Rupee vis-a-vis the American dollar is nothing related to country-specific factors rather on account of global de-leveraging, she added.

Noting India’s greater integration with global financial market since 2003, she said the country was relatively but not completely insulated from the global financial sector.

“Therefore what you are seeing in India now is part of a global phenomenon of dollar shortages and liquidity shortages" she said.

Comparing India’s external debt and external payment obligation and the level of reserves, reserves are more than adequate to cover 200% of India’s external payment obligations.