The International Monetary Fund said on Wednesday that India's potential growth rate has fallen in recent years, and is now estimated at around 6-7 per cent, which is lower than the estimate of 7.5-8 per cent before the global crisis of 2008.
The IMF rebutted the government's standard defence that global factors are responsible for the slowdown, saying bad government policies were more to blame. It noted that the global slowdown has only had a marginal role in bringing the country's once cruising economy to a crawl.
India's "GDP growth has slowed more than external factors can explain", said the IMF in a report prepared after its annual consultation with Indian authorities.
It also painted a gloomy picture of India's corporate health and warned about the deteriorating asset quality of its banks.
In its staff report prepared after the so-called Article IV consultation, the IMF's assessment of the Indian economy's recovery prospects was less rosy than the government's, even though it welcomed recent liberalisation decisions, notably the launch of a system of cash transfers for more efficient subsidy payments and the setting up of a cabinet committee on investments.
According to estimates, India's GDP grew only 4.5 per cent in 2012, down 3.4 percentage points from 7.9 per cent in 2011.