IMF pegs India 2013 growth at a low 3.75%

The International Monetary Fund (IMF) estimates India's growth rate to fall as low as 3.75 per cent in 2013, down from the 5.7 per cent estimated earlier, due mainly to poor consumer demand and a weakening of the manufacturing and service sector performances.

The IMF, in its latest `World Economic Outlook' report, says global growth is in low gear, and the drivers of activity are changing.

Emerging market economies as a whole face the dual challenges of slowing growth and tighter global financial conditions, the report said, adding that India is among the economies that may also require more tightening to address inflation pressure.

"In India, growth in fiscal year 2013 is expected to be around 3.75 per cent, with strong agriculture production offset by lacklustre activity in manufacturing and services, and monetary tightening adversely affecting domestic demand," the IMF said.

"For fiscal year 2014, growth is projected to accelerate somewhat to 5 per cent, helped by an easing of supply bottlenecks and strengthening of exports," according to the report released on the sidelines of the IMF and World Bank meetings in New York.

IMF had, in April, estimated India's GDP to expand at 5.7 per cent in 2013 and at 6.2 per cent the following year, indicating the decline in growth has bottomed out.

IMF estimates growth of India's GDP, at factor cost, to be 5 per cent in fiscal year 2012, at 4.25 per cent in 2013 and at about 5 per cent in 2014.

In 2012, India's growth rate was 3.2 per cent, while in 2011 it was 6.3 per cent, according to IMF's latest report.

In countries like India and Brazil, the IMF report said, production and supply slackened due to infrastructure and regulatory bottlenecks despite strong domestic demand. As a result, external pressures have grown in these economies, it said.

At the same time, economies, including India, Brazil and Indonesia, need more tightening to address continued inflation pressure from capacity constraints and the recent currency depreciation, the report said.

The IMF projected growth in China decelerating to 7.5 per cent this year, in line with the authorities' target, and further to 7.25 per cent next year. "Policymakers have refrained from further stimulating growth, which is consistent with the objectives of safeguarding financial stability and moving the economy to a more balanced and sustainable growth path," it said.

The report said growth in Asia during the first half of 2013 generally moderated and was weaker than anticipated in the April outlook. This was due to a more rapid slowdown in China's pace of growth, which affected industrial activity in much of emerging Asia, including through supply-chain links, while India faced persistent supply-side constraints.

By contrast, Japan was the main bright spot, due mainly to a policy shift, which has helped to boost asset prices and private consumption, it said.

The report said the drivers of activity are changing and downside risks persist although global activity is expected to strengthen moderately.

"The impulse is projected to come from the advanced economies, where output is expected to expand at a pace of about 2 per cent in 2014, about 0.75 percentage points more than in 2013," it said.

Drivers of the projected uptick are a stronger US economy, an appreciable reduction in fiscal tightening and highly accommodative monetary conditions. Growth in the euro area will be held back by very weak economies in the periphery, it said.

"Emerging market and developing economies are projected to expand by about 5 per cent in 2014, as fiscal policy is forecast to stay broadly neutral and real interest rates to remain relatively low," the report said.

The IMF report said emerging market and developing economy growth rates are now down some 3 percentage points from 2010 levels, with Brazil, China and India accounting for about two-thirds of the decline.

"Together with recent forecast disappointments, this growth decline has prompted further downgrades to medium-term output projections for emerging market economies. Projections for 2016 real GDP levels for Brazil, China and India have been successively reduced by some 8 to 14 per cent over the past two years," it said.