THE INTERNATIONAL MONETARY FUND has cut its growth forecast for India and warned that Asia`s third-largest economy is flirting dangerously with double-digit inflation.
In its World Economic Outlook released on Tuesday (September 20), the IMF projected growth of 7.8 per cent in 2011 and 7.5 per cent next year, led largely by private consumption among India`s 1.2 billion population.
The projection was down on the IMF`s June forecast of 8.2 per cent growth in 2011 and 7.8 per cent in 2012.
The report said that "a drag from renewed global uncertainty" – highlighted by a sharp increase in global financial market volatility and investor risk aversion – was behind the revision.
While the forecast is high compared to anaemic expansion in Western economies, it is still short of the double-figure growth India is targeting to lift hundreds of millions out of poverty.
India logged 8.5 per cent growth in the fiscal year to March 2011, according to government figures.
A key challenge for Indian policymakers is inflation, which is currently running close to double digits, despite 12 interest rate hikes in the past 18 months.
The "risks around inflation continue to point up," the IMF warned, adding that price rises had spread from the food sector and become "generalised" throughout the wider economy.
Inflation is a major political headache for India`s ruling Congress Party as the cost of living increases have hit its key support base in the country`s rural hinterlands.
The IMF report also predicted "sluggish" investment growth in India, partly due to "corporate sector governance issues" – a reference to anxiety about widespread corruption.
