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The International Monetary Fund (IMF) on Tuesday scaled down India's economic growth forecast by 0.2 percentage points to 5.6 per cent for 2013-14.
In its latest update on the World Economic Outlook, the multilateral agency did not directly refer to the rupee depreciation against the dollar but cautioned emerging market economies against prolonged growth slowdown, particularly if the United States policy on withdrawal of stimulus would lead to reversal in capital outflows. Emerging market economies, it said, witnessed outflows of capital, decline in equity prices and currency depreciation because of developments in the advanced world.
As if to give a prescription to the Reserve Bank of India , the IMF also advised developing economies that monetary easing might be the first line of defence against sliding growth . It, however, warned currency depreciation in emerging markets might constrain the monetary easing.
The IMF also slightly cut its forecast for India's economic growth to 6.3 per cent for 2014-15 from 6.2 per cent estimated earlier. IMF growth projections are not comparable with official growth projections. The agency computes gross domestic product (GDP) at market prices (inclusive of indirect taxes). India and other agencies, however, calculate GDP at factor cost (exclusive of indirect taxes). For example India's GDP grew at a decade low of five per cent in 2012-13. If one takes into account IMF methodology, India's GDP rose just 3.2 per cent in 2012-13, almost half of the 6.3 per cent in 2011-12.
As such, IMF projections could be taken as a broad parameter in the sense that if it lowers its forecasts for India's economy, situation could not be considered as 'rosy'. Using traditional official methodology, the government expects the economy to grow in the range of 6.1-6.7 per cent in 2013-14. The mean of this comes at about 6.4 per cent, which the Budget assumes the economy to grow.
The signs of recovery are, however, not forthcoming. Industrial growth stood at just two per cent in April, 2013 despite a low base of (-) 1.3 per cent a year ago. India's external sector also did not perform the way policy makers expected it. In April, merchandise exports rose just 1.7 per cent to $24.2 billion. With imports rising 11 per cent at $42 billion, the trade deficit stood higher at over $17 billion as against $14 billion a year ago. In May, exports, in fact, declined 1.1 per cent to $24.5 billion. With imports rising seven per cent at $44.6 billion, the trade deficit stood at over $20 billion. It was very close to $20.96 billion, a record witnessed in October, 2012.
