Collected from Economic times
The International Monetary Fund (IMF) has punctured holes in India's frequent lament that the blame for its economic woes lay outside, noting that global factors have only had a marginal role in bringing the country's once cruising economy to a crawl. Noting that India's "GDP growth has slowed more than external factors can explain," the IMF, in a report prepared after its annual consultation with Indian authorities, also painted a gloomy picture of India's corporate health and flagged up the deteriorating asset quality of its banks.
In its staff report prepared after the socalled Article IV consultation released on Wednesday, the IMF's assessment of the Indian economy's recovery prospects was less rosier than the government's even though it welcomed recent reforms decisions, notably the launch of a system of cash transfers for more efficient subsidy payments and the setting up of cabinet committee on investments.
According to IMF projections, India's GDP grew only 4.5% in 2012, down 3.4 percentage points from 7.9% in 2011. Despite being a much bigger and export-led economy, China's GDP fell to 7.8% from 9.3% over this period."Global factors have hurt exports and weighed on investment, but India's growth has slowed by more than the decline in trading partners' growth would imply," the report said. The report, attributing the economic slowdown on slowing investments, blamed it on the government and said this drop in investments had lowered India's potential GDP growth rate to 6%-7% from 7.5-8% earlier.
"In particular, high-profile tax policy decisions announced in the 2012/13 Budget have reduced foreign investors' interest in India, while the increasing difficulty of obtaining land use and environmental permits have raised regulatory uncertainty for infrastructure and other large-scale projects," it said. It also said that project approvals, clearances, and implementation had slowed sharply in reaction to recent "high-profile governance scandals". The IMF's assessment on where the blame lay for India's economic woes was not with its share of internal dissension.
Indian representatives at the fund - Executive Director Rakesh Mohan and Senior Advisor Janak Raj - appeared to rebut the fund's assessment about the country. "Staff have attributed the slowdown of the Indian economymainly to domestic supply side factors. It needs to be noted, however, that strong global headwinds such as ongoing tensions in the euro area and the concomitant persistent slowdown in global growth also had a significant impact on the economy," they said in a statement to the IMF.
The IMF has pegged India's growth at about 5.5% for 2012-13 and expects it to rise to 6% in 2013-14 and noted that continued implementation of measures to facilitate investment and a slightly stronger global growth would deliver a modest rebound in the near term. The staff report did not expect much action on interest rates from the Reserve Bank of India ( RBI) with inflation continuing to remain high. "Maintaining policy interest rates unchanged until inflation is clearly on a downward trend is the best way for monetary policy to support growth," it said.