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Resource centre on India's rural distress
 
 

IMF forecasts 4.5% growth for India; to lose second fastest-growing economy tag
-The Economic Times

India looks all set to cede the moniker of the world's second fastest growing major economy for 2012, a fall from glory for a country that was spoken in the same breath as China for much of the previous decade and even nursed ambitions of upstaging its larger neighbour.

The latest global economic growth forecasts from the International Monetary Fund (IMF) have India growing at 4.5% in 2012 (at market prices), much less than the big guns of ASEAN such as Indonesia and the Philippines, and even Bangladesh.

Although the size of the Indian economy is much bigger than these countries, making, for some people, comparisons with them odious, some analysts say these countries were benefiting from tailwinds while India faced headwinds. Their interest rates are lower compared with India and much lower than what they were at the time of Lehman crisis. Their exports are growing, while Indian exports are seeing a steady contraction.

"These economies look strong and would give a strong competition to India, if we do not keep performing," noted DK Joshi, chief economist with ratings firm Crisil. A cocktail of policy missteps, administrative paralysis in the early part of the year and poor investment activity has hit growth in India this year, changing its profile from one of the biggest boosters of regional growth in the past to one that could weigh it down last year. The IMF, which had earlier pencilled in 4.9% growth for India in 2012, has blamed the country's poor showing on weak investments and warned that, unless reversed, this could cast a shadow over future growth too.

"India's fixed investment has slowed down considerably after the global financial crisis leading to a slowing in growth.... It has also led to concerns about growth," noted Thomas Helbling, division chief in IMF's research department while releasing the outlook for World's major countries last month.

The IMF world economic outlook update showed the ASEAN 5 region comprising Indonesia, Malaysia, Philippines, Thailand, and Vietnam growing by 5.7% in 2012, while the Emerging Market and Developing Economies block is forecast to grow 5.1%. Growth in the Developing Asia block was pegged at 6.6% in 2012.

Growth is likely to stay strong in economies such as Indonesia and the Philippines due to strong fundamentals such as strong consumption and investment, diversified exports and low policy rates in both countries.

Economists say that it will be hard for India to match up to these economies if it does not keep performing, adding that India is to be blamed for the much of the deceleration "India has only itself to blame for the slowdown. External factors acted only the periphery," says Abheek Barua, chief economist at HDFC Bank, adding that countries that are growing faster actively worked on curbing corruption and governance to overcome the global headwinds.

Crisil's Joshi, who sees India growing more than 6% in 2013-14, says the country needs to sort out its domestic problems. "India needs to work harder on supply side issues, then investments."