New Delhi: Growth in the Indian economy would pick up from 6.75% in 2009-10 to 8% in 2010-11, said the IMF after the conclusion of its annual Article IV consultations with the government.
The fund has complimented the Indian economy for the scale and promptness of its recovery from the global crisis. Departing from its stated position that takes a bleak view of persisting fiscal deficits, it has therefore gone along with the government’s assessment that the deficit would be clipped starting from the Budget next month.
The IMF assessment said though the current drought could cause agriculture to contract by 1% in 2009-10, non-agriculture growth would gain momentum. On inflation, the projections showed price rise in wholesale market would ease from 8.1% by end of March 2010 to 5.5% by end of march 2011 while consumer prices in the fiscal year would soften from 11.2% to 8.8% over the same period. The assessment said rupee appreciation would contain inflation and manage capital inflows, the twin problems RBI is wrestling with.
The IMF director’s accepted that “conditions are ripe for a progressive normalisation of the monetary stance”. They also advised a tightening of capital controls only as a last resort. This week RBI governor D Subbarao had told analysts in a conference call that imposing capital controls was a long shot option to manage excess inflows.
Recognising the priority of investments in infrastructure the directors wanted the government to maintain the momentum of reforms in the financial system and stressed the importance of developing a vibrant corporate bond market and for reforms to encourage greater participation of pension funds and insurance sector in funding infrastructure.
The projections show that the recovery of growth would be aided by the pick up in savings and investment rate to pre-crisis levels. The contribution of the external sector is also expected to get a boost with the merchandise exports picking up by 22.1% to $ 178 billion in 2010-11. Net foreign direct investment is also expected to rise from $15.8 billion in 2009-10 to $ 17.4 billion in 2010-11.
However, net portfolio investments flows will slow down from $25.8 billion to $19.8 billion during the period. And gross foreign exchange reserves are projected to go up from $ 300.7 billion in end March 2010 to $327.9 billion in end March 2011. The board also welcomed the announcements to lower the.deficit starting from the next Budget.
Source : Financial Express