By Arun Kumar, IANS,
Washington: Noting that India’s economy is one of the first in the world to recover after the global financial crisis, the International Monetary Fund (IMF) Wednesday predicted that Indian economy would grow at 8 percent in fiscal 2010-2011.
“Prompt fiscal and monetary easing, combined with the fiscal stimulus already in the pipeline and the return of risk appetite in financial markets, have brought growth close to pre-crisis levels,” it said in a note on IMF Executive Board’s Article IV consultation with India.
Leading indicators suggest the output gap will continue to close, the IMF said, noting, “Capital inflows are back on the rise, and financial markets have regained most of the lost ground.”
“Growth is projected to rise from 6.75 percent in 2009/10 (April-March) to 8 percent the following year,” it said while “agriculture is likely to contract by about one percent in 2009/10 due to the drought, but non-agricultural GDP growth is expected to gather momentum”.
IMF forecast private consumption would benefit from better employment prospects and less uncertainty, and investment would be boosted by robust corporate profits, rising business confidence, and favourable financing conditions.
With India’s long-term prospects remaining strong and private sector balance-sheets sound, IMF said it expected India’s “growth to be back at potential in 2010/11 even if advanced economies grow below trend.”
“India’s near-term risks are broadly balanced,” IMF said. “On the upside, an acceleration of reforms and capital inflows could spur investment. On the downside, the main risks are elevated inflation and financing constraints arising from-among other things-the fiscal deficit, which could put breaks on the recovery.”
“Tail risks include asset price bubbles and a sudden stop in capital inflows caused by turmoil in global financial markets,” it said.
India’s medium-term growth prospects remain bright, IMF said and noted: “India was not at the centre of the global crisis and growth is well balanced and mainly reliant on domestic drivers”.
Risks to this favourable outlook stem primarily from difficulties in implementing productivity-enhancing reforms and continued supply bottlenecks, it said.
(Arun Kumar can be contacted at [email protected])