IMF lowers India's growth estimate to 4.5% for 2009

But expects growth to recover to 5.6% in 2010.

Within a span of three months, the International Monetary Fund (IMF) has reduced India’s growth projection by 0.6 percentage points to 4.5 per cent in 2009, saying that the Asia’s third largest economy has “less room to ease macroeconomic policies”.

However, in 2010, the multilateral agency predicts growth rate to recover to 5.6 per cent.

“The slowdown is primarily a result of weaker investment, reflecting tighter financing conditions and a turn in the domestic credit cycle,” the IMF said in its latest World Economic Outlook (WEO) report.

Saying that room to manoeuvre in terms of fiscal expansion is limited because of high public debt, the IMF said, “Policy rates remain high in real terms in India, and further rate cuts would help bolster credit growth.”

The Reserve Bank of India (RBI), in its latest credit policy, had reduced key interest rates by 0.25 percentage points. But repo rate — the rate at which it lends to commercial banks — is still at 4.75 per cent.

However, the report said, “China and India will see growth dropping sharply, but are still expected to achieve solid rates of growth by the standards of other countries, given the momentum of domestic demand.”

The world output, as per the latest projection, is expected to contract by 1.3 per cent in 2009, the weakest performance by far of the whole post-war period. In January, the IMF had predicted world economy to expand by 0.5 per cent.

“Growth would return in 2010, helped by strong policies, but would remain just under 2 per cent, still well below what we would see as normal,” said IMF’s chief economist Olivier Blanchard in a press release.