The International Monetary Fund on Tuesday downgraded its GDP growth forecast for India in 2012 to 4.9 per cent, making it one of the first major institutions to peg it below 5 per cent, and shows that the government will have to be vigilant about enacting reforms if it is to turn the economy around.
The IMF pushed for further reforms, while acknowledging how “welcome” the government’s recent reforms push was.
Per the IMF’s World Economic Output report:
In India, there is an urgent need to reaccelerate infrastructure investment, especially in the energy sector, and to launch a new set of structural reforms, with a view to boosting business investment and removing supply bottlenecks. Structural reform also includes tax and spending reforms, in particular, reducing or eliminating subsidies, while protecting the poor. In this regard, the recent announcements with respect to easing restrictions on foreign direct investment in some sectors, privatizations, and lowering fuel subsidies are very welcome.
Indeed, P Chidambaram, the finance minister who helped to set those reforms in motion, on Monday said that further tough – and potentially unpopular – decisions will have to be made.
“Without reforms, we risk a sharp and continuing slowdown of the economy, which we cannot afford given the imperative need to generate jobs and incomes for a large population, most of whom are young,” Chidambaram said at a news conference.
With that recent policy action in mind there is a sliver of silver lining – 2013 will be better, though still not the near-double-digit heights India’s growth rate once reached.
“The outlook for India is unusually uncertain: for 2012, with weak growth in the first half and a continued investment slowdown, real GDP growth is projected to be close to 5 per cent, but improvements in external conditions and confidence—helped by a variety of reforms announced very recently—are projected to raise real GDP growth to about 6 per cent in 2013,” the report said.