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IMF revises Indian growth forecasts to 8.3 pc from 7.3 pc

Written by: Staff
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Singapore, Sep 14: Citing robust domestic demand and surge in exports, the International Monetary Fund (IMF) today upgraded its growth projections for the Indian economy to 8.3 per cent this year and 7.3 per cent in 2007, as compared to the earlier forecasts of 7.3 per cent and 7 per cent.

The fund, however, said increasing global oil prices and price rise remain a threat, to the fast growing economy.

''While the Indian authorities should be commended for seeking to spread the benefits of growth, experience suggests this is best done by expanding opportunity, through improvements in education, healthcare, finance, and infrastructure, and by adopting clear and stable rules for business, rather than offering often-misdirected subsidies, guarantees, and tax sops that a stretched budget can ill-afford,'' said IMF Research Department Economic Counsellor and Director Raghuran Rajan on the eve of the IMF/World Bank annual meeting in Singapore.

The Indian economy grew by 8 per cent in 2004 and 8.5 per cent in 2005.

IMF also expressed its confidence in the Chinese economy and projected the highest 10 per cent growth for this year.

''The Chinese economy remains heavily reliant on fixed asset investment, however, with excess liquidity contributing to the problem,'' it noted.

''Ultimately, in the market economy that China is rapidly becoming, administrative methods to curb investment are only temporary fixes, akin to using band aids to staunch a gaping wound,'' Mr Rajan told an international press conference held in Singapore this morning.

The best means to control is to alter incentives via prices. But when a number of prices, including the exchange rate and interest rates, are not set by the market, altering any one price may have limited effect in the desired direction, he said.

''Moving all prices to market levels may cause pain, but it is ultimately the only way to go, and it is best to do it when growth is strong,'' Mr Rajan suggested the Chinese.

The Japanese economy is projected to grow by 2.7 per cent this year, moderating to 2 per cent in 2007.

Overall, it projected a 5.1 per cent global economic growth for this year, slowing mildly to 4.9 per cent in 2007, despite emerging markets and developing countries delivering very impressive growth rates.

''Though the US economy is beginning to slow down, the Euro area has gained momentum, Japan's expansion continues, and emerging market and developing countries are delivering very impressive growth rates,'' said the IMF.

But Mr Rajan cautioned that the strong forecast was surrounded by more uncertainty than usual, with risks tilted to the downside.

He pointed out the sharper-than-projected slowdown in the United States, coupled with uncertainty about the extent to which the rest of the world's growth would be impacted.

The IMF was also concerned about further increase in global inflationary pressures, stemming from tight labour and commodities markets that could induce central banks to tighten more than currently envisaged, altering currently benign conditions in the financial markets, he added.

The IMF remained wary of an abrupt unwinding of global imbalances.

''The key medium term risk in my view is that we are doing too little to support the worldwide growth in productivity that accounts for the robust health of the world economy,'' Mr Rajan said.

The IMF has projected a 3.4 per cent growth for the US economy this year and 2.9 per cent next year. It has also projected a cautious 2.4 per cent growth for Eurozone this year and 2 per cent next year.

UNI

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