Gloomy projections about India's economy hit a new low Tuesday when the International Monetary Fund downgraded its estimate for growth this year to just 4.9 percent, as the country struggles to cut subsidies and plump up investor confidence.
Calling the outlook for India “unusually uncertain,†the fund said weak growth in the first half of 2012 and a continued investment slowdown led to the bleak projection. But it said growth could rise to about 6 percent next year with “improvements in external conditions and confidence,†boosted by a package of economic policy changes recently introduced by the central government.
The new growth forecast for 2012 was 1.3 percentage points lower than the fund's July projection. The fund said domestic problems in emerging economies like India's contributed to its overall revision of global growth prospects for 2012 to 3.3 percent, down from 3.5 percent in July.
“India's activity suffered from waning business confidence amid slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external demand,†the I.M.F. said in its World Economic Outlook report. (Read the full Asia portion of the report here.)
But the fund applauded the steps taken by the government in recent weeks and urged India to focus on speeding up economic reforms.
“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,†the report said.
“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.â€
