IMF lowers India's growth forecast

New Delhi: The International Monetary Fund on Monday lowered India's growth forecast for 2012 calendar year, citing weakening domestic demand and difficult external environment, and said the country faced financial stability concerns because of the depreciating rupee and large fiscal deficit.

In its World Economic Outlook (WEO), the fund warned of rising risk to the global economy and hard landing in China.

The fund expects India's economy to expand only 6.1% in 2012 against its April estimate of 6.8%. Moreover, it does not see any meaningful recovery in 2013, pegging GDP growth at only 6.5%, down from 7.2% estimated earlier.

"Growth momentum has also slowed in various emerging market economies, notably Brazil, China, and India. This partly reflects a weaker external environment, but domestic demand has also decelerated sharply in response to capacity constraints and policy tightening over the past year," the report said. Most private economists have already lowered India's GDP growth in 2012-13 fiscal to around 6%.

The IMF has cut 2012 global growth by 0.1% to 3.5% and sees it rising to 3.9% in 2013, 0.2% below its earlier estimate. The mid-year assessment of the world economy said "downside risks continue to loom large," and warned of "tail risks of a hard landing in China, where investment spending could slow more sharply, given overcapacity in a number of sectors,'' pegging the country's growth at 8% this calendar.

The WEO called for immediate action on the policy front from all big economies and sought quick resolution of the Euro crises.

The fund released two other reports - Global Financial Stability Report and Fiscal Monitor.