Thursday, July 17, 2008

Not all hope lost - economy can still grow at 8%

Amid various disappointing indicators, India has received some solace with the International Monetary Fund marginally revising its projections for economic growth to 8 per cent in 2008 from its earlier estimates of 7.9 per cent.

IMF in its update of World economic Outlook released today, however, retained its earlier forecast of 8 per cent GDP growth for India during 2009.

Indian economy grew by 9.3 per cent in 2007.
 
Projections for Indian economy are not too dismal, if one takes IMF views on the world economy. The multi-lateral agency projected the global growth to moderate from five per cent in 2007 to 4.1 per cent in 2008 and 3.9 per cent in 2009.

"The slowdown in global growth is expected to continue through the second half of 2008, with only a gradual recovery during 2009," IMF said.

It said the global growth decelerated to 4.5 per cent in the first quarter of 2008, down from 5 per cent in the third quarter of 2007, with sluggish activities both in advanced and emerging economies.

In advanced economies, business and consumer sentiments have continued to retreat, while industrial production has weakened further. There has also been signs weakening in business activities in emerging economies.

The projections of the multilateral funding agency for India came a few days after Fitch downgraded the country's domestic credit outlook to negative from stable. Fitch also expected Indian economy to grow at 7.7 per cent in 2008-09 against nine per cent in the previous year.

Indian economy is widely expected to witness a moderation this year due to rise in borrowing costs as RBI continued to tighten monetary stance to tame inflation, which is inching towards 12 per cent mark.

The recent industrial production data have also shown that the industry continued to bear the brunt of rising costs as its growth plunged to 3.8 per cent in May compared to 10.6 per cent last year. Both manufacturing and electricity sectors showed a sharp decline in their growth. This may be pointer to the slow down in the Indian economy.

The Finance Ministry also expects moderation in India's growth this fiscal, though not much. It hopes that the economy would grow between 8-8.5 per cent in 2008-09.

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