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IMF scales down India's growth to 5%

The International Monetary Fund, which had projected a 5.5 per cent growth for India earlier, has now scaled it down to 5 per cent for this financial year in the face of sluggish recovery of the economy and drought.

"The India economy is now expected to grow at 5 per cent compared to the IMF's projection of 5.5 per cent in April," IMF's World Economic Outlook released in Washington day said.

The main reason for the downward revision is the sluggish recovery of the Indian economy, which had slowed down in the years following the Asian economic crisis of 1997-98, it said.

"In India, a cyclical recovery is now under way, although agriculture has been negatively affected by a poor monsoon, and the regional security situation and higher oil prices are sources of risk," the report said.

The IMF has forecast a low growth in not only India but the entire South Asian region, which was expected to post an average 4.8 per cent growth this year against its earlier projections of 5.2 per cent.

Severe drought in several parts of India because of delayed and poor monsoon would hit farm production which was expected to face a shortfall of several million tonnes, the report said.

The report said tense situation in Jammu and Kashmir also had its impact on the Indian economy as it had scared away prospective foreign investors. Even some of the domestic companies were not forthcoming with new investments, it added.

Turning to Pakistan, the report said "higher military expenditure as a result of regional tensions have complicated the outlook. But it raised the growth forecast for Pakistan from the projections of 4.2 per cent in April to 4.6 per cent.

Even the Reserve Bank of India had indicated that its growth projections of 6-6.5 per cent in April could be revised downwards when the credit policy is announced in October end.

The IMF has forecast a low growth in not only India but the entire South Asian region, which was expected to post an average 4.8 per cent growth this year against its earlier projections of 5.2 per cent.

Severe drought in several parts o India because of delayed and poor monsoon would hit farm production, which was expected to face a shortfall of several million tonnes, the report said.

The report said tense situation in Jammu and Kashmir also had its impact on the Indian economy as it had scared away prospective foreign investors. Even some of the domestic companies were not forthcoming with new investments, it added.

Turning to Pakistan, the report said "higher military expenditure as a result of regional tensions have complicated the outlook. But it raised the growth forecast for Pakistan from the projections of 4.2 per cent in April to 4.6 per cent.

Even the Reserve Bank of India had indicated that its growth projections of 6-6.5 per cent in April could be revised downwards when the credit policy is announced in October end.

IMF said higher crude oil prices and rising fiscal deficit would also contribute to the slowdown in India's economic growth.

Though IMF praised India for the "significant progress" made in its divestment programme and opening up of the oil sector, the report was critical of the slow progress of economic reforms.

"A large unfinished agenda remains, including further opening up to trade and foreign investment, removing restrictions on agricultural and industrial activity and in strengthening the financial system," it said but forecast a higher growth next year at 5.7 per cent.

"With fiscal deficit among the highest in the world, fiscal consolidation has become urgent," the report said adding India was stil lagging behind the rest of Asia in terms of opening up its trade.

Though foreign investment flow was "very low" in India, its trade performance still looked favourable because of its competitive edge in IT, the report said.

To realise the medium term export strategy's target to capture one per cent share of global exports by 2007, it said India needed more steps to eliminate the anti-export bias.

"Priorities should include significantly reducing and simplifying the tariff structure to bring the average tariff rate down to or below the Asian level of 12 per cent and removing the remaining non-tariff and administrative barriers on imports and exports," it said. court earlier this month.

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