Inflation key challenge for India as growth slows: IMF

September 20th, 2011 - 8:04 pm ICT by IANS  

Washington, Sep 20 (IANS) Predicting that India’s growth would slow down from 10 percent last year to an average of 7.5 to 7.75 percent during 2011-12, the International Monetary Fund (IMF) has cited inflation as its key challenge.

“A key challenge for policymakers is to bring down inflation, which is running close to double digits and has become generalised,” the IMF said in the September 2011 World Economic Outlook (WEO) released here Tuesday.

“Despite policy tightening, real interest rates are much lower than pre-crisis averages, and credit growth is still strong,” it noted.

Growth activity is expected to be led by private consumption, the IMF said suggesting “investment is expected to remain sluggish, reflecting, in part, recent corporate sector governance issues and a drag from the renewed global uncertainty and less favourable external financing environment”.

Noting that headline inflation in Asia is projected to average 5.25 percent in 2011, before receding to 4 percent in 2012, assuming commodity prices remain stable, the IMF said against this backdrop, further exchange rate flexibility remains a key policy priority for emerging Asia.

Real GDP growth in emerging and developing economies during the second half of 2011 is expected to be about 6.25 percent, down from about 7 percent during the first half of the year, the IMF said.

Propelled by China and India, emerging Asia is forecast to continue to post strong growth of about 8 percent.

A number of major emerging and developing economies, and advanced economies with very close ties to them, continue to see buoyant credit and asset price growth. Credit growth has been high in Brazil, Colombia, Hong Kong, India, Indonesia, Peru, and Turkey, the IMF said.

Among G20 economies, the structural deficit is very large in India and appreciable in South Africa.

The experience of advanced economies shows how much policy room may be needed in the event the credit cycle suddenly turns. Elsewhere in emerging Asia, deficits and debt are less of a concern, the IMF said.

(Arun Kumar can be contacted at arun.kumar@ians.in)

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