IMF projects FY14 growth at 4.6%

The International Monetary Fund (IMF) on Tuesday pegged growth in India’s gross domestic product (GDP) for 2013-14 at 4.6 per cent, close to the decade-low growth of 4.5 per cent clocked in 2012-13. While the IMF had projected 4.25 per cent growth in October 2013, the government, in its advanced estimates, had projected growth of 4.9 per cent.

Analysts agreed with the IMF’s projection that growth might slip compared to the government's advance estimates for 2013-14. “Growth can always go down to that level,” said Pronab Sen, chairman of the National Statistical Commission.

Abheek Barua, HDFC chief economist, agreed. “They are in the ballpark of what most analysts are saying. Our estimate is growth will touch 4.7 per cent in FY14.”

For the first nine months of 2013-14, India’s economy grew 4.6 per cent. For 2013-14 growth to stand at 4.9 per cent, the last quarter has to record 5.5 per cent growth.

In its World Economic Outlook released on Tuesday, IMF forecast India’s GDP growth for 2014-15 at 5.4 per cent, against the Reserve Bank of India (RBI)’s range of five-six per cent. Asian Development Bank had predicted GDP would grow 5.5 per cent in 2014-15.

“For India, real GDP growth is projected to strengthen to 5.4 per cent in 2014-15 and 6.4 per cent in 2015-16, assuming government efforts to revive investment growth succeed and export growth strengthens after the recent rupee depreciation,” the IMF said in its report.

“Consumer price inflation is expected to remain an important challenge, but should continue to move onto a downward trajectory… Further tightening of the monetary stance might be needed for a durable reduction in inflation and inflation expectations.”

Sen agreed, saying unless some action was taken on the fiscal front, one had to resort to the monetary policy to control inflation.

In February, Consumer Price Index (CPI)-based inflation eased to a two-year low of 8.1 per cent, against 8.79 per cent in January. However, at its policy review on April 1, RBI kept the policy rate unchanged at eight per cent. Since Raghuram Rajan assumed office as RBI Governor in September, he has raised the repo rate thrice, by a total of 0.75 per cent, or 75 basis points.

The IMF forecast average retail inflation would stand at eight per cent in 2014-15.

On the external front, it said the country’s current account deficit to stand at two per cent of GDP in FY14, but added it might rise to 2.5 per cent in FY15 and stay at that level in FY16.

“A pick-up in exports in recent months and measures to curb gold imports have contributed to lowering the current account deficit. Policy measures to bolster capital flows have further helped reduce external vulnerabilities,” the IMF said.

It called for improving fiscal consolidation to lower macroeconomic imbalances. To boost fiscal consolidation, it proposed according priority to market-based pricing of natural resources, subsidiary reforms, and implementation of the Goods and Services Tax, among other measures.