India questions IMF’s lowered growth projections

Washington : India has joined issue with the International Monetary Fund (IMF) over the paring down of its growth rate from 5.6 percent to 3.8 percent since July saying India didn’t share “this pessimistic outlook”.

“I would like to ask, respectfully, what is the information that IMF has gathered between July and September, that we do not have, that has impelled the Fund to drastically change the estimate?” Finance Minister P. Chidambaram asked Saturday.

“We do not share this pessimistic outlook,” he said addressing the plenary of the Fund’s steering International Monetary and Financial Committee at the Fund-World Bank’s just concluded annual meetings here.

Noting that in some cases IMF projections have been revised downwards significantly in the very next update and have in the past often been at divergence with final growth numbers, he also stressed the “need for reviewing the methodology for growth projections.”

“There is no doubt that the Indian economy has suffered from a significant downturn this year,” Chidambaram acknowledged while pointing out that India has “taken several measures to put our economy on a sustainable growth path.”

Steps have been to taken ease supply constraints and improve the investment climate and necessary measures initiated to contain the fiscal deficit and the current account deficit, he said.

Committed to the path of fiscal consolidation, the Indian government would not allow the red lines on the two deficits to be breached under any circumstances, Chidambaram said. “We are prepared to take difficult decisions in this regard, should the need arise,” he added.

Projects amounting to more than $64 billion have been cleared in the last few months. Once these projects come on stream, they should have an all-round salutary effect, he said.

Describing persistent inflation as another major challenge facing the Indian economy, he said India has taken measures to bring inflation down through a mix of demand-side and supply-side policies.

At a press briefing Friday IMF’s Director, Asia and Pacific Department Anoop Singh had said IMF lowered its growth forecasts for India as “there has been fallout from recent stress.”

However, he acknowledged that corrective policies are being taken and “as a result, we expect growth to pick up in India next year.”

Asked about India’s disagreement with the IMF assessment, Anoop Singh suggested there wasn’t a “huge difference” between the growth projections and “the issue simply is how quickly the economy responds.”

“Going by historical evidence, it will take several quarters, and the economy may only fully recover next year,” he added by way of explanation. “I certainly hope that we are wrong and that the economy recovers faster and the lags are shorter.