India's economic growth is likely to shrink by 1.25 per cent to 7.9 per cent this fiscal, mainly on account of tight monetary conditions and continued pressure on inflation, the International Monetary Fund said on Friday.
"India's growth is expected to decline by 1.25 per cent to 7.9 per cent driven by slowdown in investment on tightening credit conditions. Fiscal stimulus will provide a partial offset," stated the IMF's Regional Economic Outlook: Asia and Pacific released in Washington.
The IMF report also warned that investment would be more affected than consumption on account of the tight monetary conditions and fall in global economy following US sub-prime crisis.
The growth momentum has eased in the recent months, the report stated. Compared to China, India has little fiscal space to keep up the growth, mainly on account of high public debt.
On inflation, which has risen noticeably in India (7.41 per cent for the week ended March 29) and other nations in the region, the report stated that the pressure on price rise persists.
"Producer price inflation is now running above headline inflation across much of the region, pointing to the potential for further price pressures ahead," IMF report shows.
The IMF's projection assumes significance in the wake of the annual credit policy to be announced by the Reserve Bank on April 29. RBI would have to balance the competing needs of taming inflation and boosting economic growth.
