IMF pegs FY14 growth at 4.25% on weak demand

Casting doubts over the finance ministry's optimism that India's economy would grow more than five per cent in FY14, the International Monetary Fund (IMF) pegged the country's economic growth at 4.25 per cent on Tuesday, a day before Finance Minister P Chidambaram is to leave for Washington and San Francisco to attend the annual IMF-World Bank meet. IMF attributed low growth to poor demand and weak manufacturing as well as services sector performance.

"In terms of GDP at factor cost, growth is estimated to be five per cent in fiscal year 2012 (FY13) and is projected to be 4.25 per cent in 2013 (FY14)," IMF said in the World Economic Outlook released on Tuesday.

If India's economy grows by this rate, it would be the lowest economic expansion in 11 years. Before this, the economy grew by lower rate of 4 per cent in 2002-03.

This is probably the first time the IMF has given projections on a methodology used by India. It generally gives it on the basis of GDP at market prices (including indirect taxes). According to that methodology, it pegged India's economic growth at 3.75 per cent, far lower than 5.6 per cent predicted by it earlier.

IMF also predicted that the retail-price inflation will remain high at 11 per cent this year owing to food price pressures, which may require more monetary tightening at a time when there is growing demand back home to cut rates to spur economic growth.

If the economy expands by the rate projected by IMF, the first three years of the 12th five year Plan (2012-13 to 2016-17) will yield just 4.75 per cent growth rate a year, on an average, which is far short of the Planning Commission's target of eight per cent.

The Prime Minister's Economic Advisory Council in its Economic Outlook report had cut India's GDP growth projection to 5.4 per cent for the current financial year from 6.4 per cent it had projected earlier. However, many brokerages firms banks had forecast the GDP growth below 5 per cent for 2013-14.

Economic affairs secretary Arvind Mayaram earlier this month had said that analysts would revise their projections upwards for economic growth.

The economy grew by a four-year low of 4.4 per cent in the first quarter of 2013-14. The finance ministry expects the growth to be higher in the second quarter and a pick-up in the second half.

For 2014-15, IMF forecast the economy to grow by five per cent. It projected inflation to stay high at almost 11 per cent in 2013 due to food price pressures and nine per cent in 2014.

The consumer price inflation, taken by IMF for its calculation, stood at 9.52 per cent in August against 9.64 per cent in the previous month.

If the prediction turns out to be true, the Reserve Bank of India would be under greater pressure to turn its focus on growth or inflation.