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India's economy is slowing: IMF

March 18, 2009 11:37 IST

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India's growth is likely to slowdown to 6.25 per cent in 2008-09 on falling corporate investment and deteriorating global outlook, the International Monetary Fund has said.

Partly reflecting the deteriorating global outlook, IMF, which concluded its India consultations on March 6, in a statement projected India's growth to moderate to 6.25 per cent in 2008-09 and further to 5.25 per cent in 2009-10.

However, India has forecast growth at 7.1 per cent for 2008-09.

The fund said corporate investment, the major growth driver during recent years, is expected to slow because of weakening profitability and confidence, and tightening of financing conditions from foreign and nonbank sources.

In a statement, the world body said policy measures to stimulate Indian economy and a good harvest should support domestic demand.

"The uncertainty surrounding the forecast is unusually large, with significant downside risks. The main upside risk stems from a larger-than-anticipated impact of the stimulus measures that the authorities have already implemented."

After last year's record of 9.2 per cent of GDP, the IMF said the capital inflows are expected to decline this fiscal year. Till December 2008 portfolio investment recorded a $11 billion outflow.

External commercial borrowing has slowed considerably, though there has been a mild recovery in portfolio investment since October 2009 and foreign direct investment has held up relatively well, it said on Tuesday.

Even as the reserves have declined this fiscal year, from a historic peak of $315 billion in May 2008 to $252 billion as of February 6, 2009, IMF said the reserves remain adequate compared to India's gross financing requirement and imports.

The Fund said as a result of the global crisis, in 2008, the stock market index declined by over 50 per cent and the rupee depreciated 23 per cent versus the dollar and 13 per cent in nominal effective terms.

"The real effective exchange rate depreciated by 10 per cent and is in line with its equilibrium value," it said. In early 2009, however, the rupee and the stock market have stabilised somewhat, it added.



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