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IMF sees India growing at 5.4 per cent in FY'15

09 April 2014

The International Monetary Fund (IMF) expects the Indian economy to grow at a faster pace of 5.4 per cent in 2014 against a growth of 4.4 per cent in 2013-14.

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.

The projection comes amidst signs of slightly stronger global growth, improving export competitiveness and implementation of recently approved investment projects.

"India's growth is expected to recover from 4.4 per cent in 2013 to 5. 4 per cent in 2014, supported by slightly stronger global growth, improving export competitiveness and implementation of recently approved investment projects," according to the latest edition of the World Economic Outlook released by the International Monetary Fund (IMF) said.

 ''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.

"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.

Overall growth is expected to firm up on policies supporting investment and a confidence boost from recent policy actions, but will remain below trend, it added.

"Consumer price inflation is expected to remain an important challenge, but should continue to move onto a downward trajectory," the IMF report said.

The outlook also projected India's growth rate to increase to 6.4 per cent in 2015.

This projection is based on the assumption that the authorities gradually rein in rapid credit growth and make progress in implementing a reform blueprint so as to put the economy on a more balanced and sustainable growth path, the report said.

In India, the IMF report said, further tightening of the monetary stance might be needed for a durable reduction in inflation and inflation expectations.

"Continued fiscal consolidation will be essential to lower macroeconomic imbalances," it said.

The forecast for China is that growth will remain broadly unchanged at about 7.5 per cent in 2014-15, only a modest decline from 2012-13.

"In China, reforms that liberalise the financial system and raise the cost of capital will be key to improving the allocation of credit and boosting productivity growth.

"In Japan, structural reforms are needed to achieve a sustainable pick-up in growth and a durable exit from deflation," it said.

Policies are expected to remain accommodative, although in a few cases (India, Indonesia) interest rate hikes on the one hand will attenuate vulnerabilities, but on the other hand could weigh on growth.

For Asia as a whole, growth is expected to accelerate modestly, from 5. 2 per cent in 2013 to about 5.5 per cent in both 2014 and 2015.

The improved outlook in advanced economies, alongside more competitive exchange rates in some cases, will help boost exports, it said, adding that domestic demand will continue to be supported by strong labour markets and still-buoyant credit growth.

The acceleration is being driven mostly by strong growth in advanced economies, including the United States and the United Kingdom, and a modest recovery in the 18 nations that use the euro currency.

By contrast, developing nations, particularly Russia, Brazil and South Africa, are now expected to grow much more slowly than the IMF forecast three months ago.

Russia's economy will likely suffer as a result of its fight with the US and Europe over the Ukraine. Others face high interest rates, which are intended to fight inflation but could slow growth.

The IMF, in its World Economic Outlook report, sharply upgraded its growth forecasts for the UK, Germany and Spain. It expects the eurozone to grow 1.2 per cent in 2014 and 1.5 per cent in 2015 after shrinking 0.5 per cent last year. Both estimates are one-tenth of a percentage point higher than the IMF's January forecasts.

The IMF made no changes to its forecasts for US growth, which it estimates at 2.8 per cent this year and 3 per cent in 2015.

The 188-nation IMF and its sister organization, the World Bank, will hold their spring meetings in Washington this weekend.

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