India to grow by 8.8%, inflation a concern: IMF

NEW DELHI: The International Monetary Fund (IMF) expects Indian economy to grow by 8.8% during the current financial year, up from 7.4% a year ago, mainly driven by robust growth in farm sector and pick up in consumption.

The multilateral lending agency, however, expressed concern over rising prices and underlined the need for controlling inflationary expectations by more monetary actions by the Reserve Bank.

“Indian economy is projected to grow by 8.8% in 2010-11. This year's growth is already benefiting from the rebound in agriculture and pick up in private consumption and employment prospects have improved and disposable income continues to rise,” the IMF said in a report after Article IV consultations with the Indian officials.

Under this article IMF holds bilateral discussions with members usually every year on macroeconomic developments.

IMF has commended Indian authorities for their economic stewardship which helped the country weather the crisis well.

The economy expanded by 8.9% during the first half of the current fiscal and, according to the government estimates, may revert to the pre-global crisis level of 9% growth.

However, the IMF has projected moderation in growth form the current high levels to 8.1% next fiscal.

Listing rising prices as a major area of concern, the IMF said the RBI could take more monetary steps to contain inflationary expectations.

“We see room for further rate increase (by RBI) but at the same time it has to be done gradually and needs to be looked at continuously,” senior Resident Representative of the IMF Sanjaya Panth told reporters in Delhi.

The food inflation, according to the data released by the government, rose to 23-week high of 18.32% for the week ended December 25. The overall inflation was 7.48% in November.

The inflation, according to IMF, could moderate to 6.5% by March end. Besides inflation, high capital inflows and uncertainty in the global economy are the other areas of concern that could impair growth.

“Risks to growth are broadly balanced with downside risks relating mainly to the global economy,” the report said.

Mr Panth said there were concerns on rising current account deficit but was comfortably financed by capital flows. However, he cautioned that surging capital inflows could further spur investment but could complicate macroeconomic management and macroprudential tools may have to be reported to.

The lender though does not see any need for further controls. Mr Panth said sector specific and measures such as rejig in the external commercial borrowing regime could be resorted to. In 2010, the overseas portfolio investment more than doubled to $ 39 billion from $ 18 billion a year ago.

The IMF has welcomed emphasis on investment in infrastructure and said that substantial adjustment in spending including cut in subsidies would help India achieve social goals along with medium-term fiscal consolidation.