"The downgrade reflects both an expectation that current drags on business sentiment and investment will persist and a weaker external environment," the report said. Released in Tokyo ahead of the IMF-World Bank 2012 Annual Meetings, the report said that the growth has weakened in the first half of current year due to deteriorating business sentiment and stalled investment due to governance issues.
"In India, growth weakened more than expected in the first half of 2012, an outcome of stalled investment caused by governance issues and red tape, and deterioration in business sentiment against the backdrop of a rising current account deficit and the recent rupee depreciation," it said.
The report presented a gloomier picture of the global economy than a few months ago, saying prospects have deteriorated further and risks increased. The IMF's forecast for global growth was marked down to 3.3 per cent this year and 3.6 per cent for 2013.
The multilateral agency said advanced economies are projected to grow by 1.3 per cent this year, compared with 1.6 per cent last year and 3 per cent in 2010, with public spending cutbacks and the still-weak financial system weighing on prospects.