IMF forecasts low growth rate for India and China

Washington, Jan 29: The International Monetary Fund (IMF) has forecasted that the world economic growth has been falling since World War II. The monetary institution has lowered India and China's growth projections for 2009 to 5 per cent and 6.75 per cent respectively.

IMF Chief Economist Olivier Blanchard said, "We now expect the global economy to come to a virtual halt." IMF released an update to its World Economic Outlook together along with an update to its Global Financial Stability Report on Wednesday, Jan 28.

IMF said in its latest assessment of the world economy that the world growth is projected to fall to just 0.5 per cent in 2009, its lowest rate in 60 years, with financial markets remaining under stress and the global economy taking a sharp turn for the worse, sending both global output and trade plummeting.

Meanwhile, Indian Planning Commission's deputy chairman, Montek Singh Ahluwalia, said on Wednesday, Jan 28 that India should be able to maintain economic growth of around 6.5-7 per cent in the 2009/10 fiscal year but needs to ramp up infrastructure spending to boost growth, .

Growth in India, Asia's third-largest economy, has fallen from rates of about 9 per cent in the past three years.

The Reserve Bank of India (RBI) on Tuesday, Jan 27 cut its forecast for Gross Domestic Product (GDP) growth in the 2008/09 fiscal year ending March 31 to 7 per cent, which would be the slowest pace in six years.

"If we're somewhere between 6.5 to 7 (per cent) this year, we could probably end up doing the same thing next year," Ahluwalia said.

"Maintaining such momentum would depend in part on global financial markets starting to recover around the middle of the year, adequate fiscal stimulus and a pickup in private investment," Ahluwalia said in an interview on the sidelines of the annual meeting of the World Economic Forum.

"Cutting interest rates further would not be critical to reviving growth," he said, as the RBI has already cut policy rates by 350 basis points since Oct and left banks with plenty of cash. "We desperately need a lot of investment in infrastructure," he said.

"It's the thing most likely to lead to a crowding in of private investment, rather than a crowding out." Ahluwalia said that the government should not be overly concerned about drastically reducing its budget deficit next year from the anticipated level of roughly 8 per cent of GDP this year. "You don't have to go back to 3.5 (per cent), you can easily do that later," he said.

"We should aim at a deficit that's lower than in the current year, suggesting that we're beginning to turn around, and all of the additional deficit above what would normally be the norm should be devoted to investment in infrastructure."

Ahluwalia said he was hopeful that the higher deficits would not lead to ratings downgrades, adding that the government did not have plans to issue sovereign debt on international markets. "The key issue is, these fiscal deficits are not the result of fiscal irresponsibility starting from equilibrium," he said.

OneIndia News (With inputs from Agencies)