gjimt2014managersf1: 1273577 Monika F1, Q47- IMF’s growth projection for India?

1273577 Monika F1, Q47- IMF’s growth projection for India?

Introduction-

The International Monetary Fund (IMF) is an International Organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world’s international post–World War II. Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds temporarily. Through this activity and others such as surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries

The IMF promotes international monetary cooperation and exchange stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.

With its near-global membership of 188 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities—and manage the challenges—posed by globalization and economic development more generally.

The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties.

The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.

The IMF has evolved along with the global economy throughout its 65-year history, allowing the organization to retain its central role within the international financial architecture

As the world economy struggles to restore growth and jobs after the worst crisis since the Great Depression, the IMF has emerged as a very different institution. During the crisis, it mobilized on many fronts to support its member countries. It increased its lending, used its cross-country experience to advise on policy solutions, supported global policy coordination, and reformed the way it makes decisions. The result is an institution that is more in tune with the needs of its 188 member countries.

Stepping up crisis lending. The IMF responded quickly to the global economic crisis, with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending (that’s to say, subsidized lending at rates below those being charged by the market) to the world’s poorest nations.
Greater lending flexibility. The IMF has overhauled its lending framework to make it better suited to countries’ individual needs. It is also working with other regional institutions to create a broader financial safety net, which could help prevent new crises.
Providing analysis and advice. The IMF’s monitoring, forecasts, and policy advice, informed by a global perspective and by experience from previous crises, have been in high demand and have been used by the G-20.
Drawing lessons from the crisis. The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture.
Historic reform of governance. The IMF’s member countries also agreed to a significant increase in the voice of dynamic emerging and developing economies in the decision making of the institution, while preserving the voice of the low-income members.

Discussion

Last Year The International Monetary Fund (IMF) on 9th July 2013 lowered India’s growth forecast for 2013-14 to 5.6% from the 5.8% it projected in April, holding that the risks of a longer downturn in emerging market economies had increased because of domestic capacity constraints, slowing credit growth and weak external demand.

In an update to its April World Economic Outlook, IMF said India’s growth would recover to 6.3% in 2014-15, marginally lower than its April forecast.

India’s economy expanded 5% in the year ended 31 March, the slowest pace in 10 years, as high borrowing costs intended to douse inflation hurt corporate investment and consumer spending, and weak external demand curbed export growth.

The finance ministry expects growth to exceed 6% in the current financial year.

However, the projections by IMF and the finance ministry are not comparable because they use different data sets to measure economic growth.

IMF cautioned that while old risks such as a protracted recession in the euro area remain, new threats have emerged in the emerging markets because of the anticipated unwinding of monetary policy stimulus by the US, which may lead to sustained capital flow reversals.

The Fund revised down its global growth forecast to 3.1% in 2013 from 3.3% projected earlier. While the US growth estimate has been lowered to 1.7% in 2013 from 1.9% projected in April, economic output in the euro area is expected now to contract 0.6%, compared with the 0.8% contraction projected earlier.

As the US economy recovers faster than expected, risk appetite for emerging market assets will diminish, said D.K Joshi chief economist at the rating agency Crisil Ltd “So there will be hiccups in the short run,” he said.

IMF said growth continued to disappoint in major emerging market economies, reflecting, to varying degrees, infrastructure bottlenecks and other capacity constraints, slower external demand growth, lower commodity prices, financial stability concerns, and in some cases, weaker policy support.

The Fund said that for stronger global growth, major advanced economies should maintain a supportive macroeconomic policy mix, combined with credible plans for reaching medium-term debt sustainability. Many developing economies have to opt for structural reforms while maintaining macroeconomic stability to sail through the crisis.

“Emerging market economies have generally been hit hardest, as recent increases in advanced economy interest rates and asset price volatility, combined with weaker domestic activity have led to some capital outflows, equity price declines, rising local yields, and currency depreciation,” it said.

IMF advocated that the US continue its monetary policy stimulus until its economic recovery is well-established. “Clear communication on the eventual exit from monetary stimulus will help reduce volatility in global financial markets,” it said.

The Indian currency has been the worst performer against the dollar since the US Federal Reserve said in May that it would gradually start withdrawing monetary stimulus, starting in September, should the economic recovery continue as expected. In June alone, the currency tumbled 4.9%, making it the worst performer among 78 global currencies, according to Bloomberg data, as investors pulled money out of Indian stocks and bonds.

In the quarter to June, the currency lost 8.6%. The rupee closed at 60.14 a dollar on Tuesday after strengthening to an intra-day high of 59.65, a sharp rebound from Monday’s intra-day record low of 61.21.

The impact of capital outflows demonstrated the extent to which India has become dependent on foreign funds that have gushed into emerging markets after the Fed embarked on an easy money policy to stimulate the US economy following the 2008 financial crisis.

Emerging markets received at least $250 billion a year between 2010 and 2012. Since 2009, foreign investors have pumped about $90 billion into Indian equities and $24 billion into bonds.

The International Monetary Fund (IMF) has bumped up India's growth forecast for the current fiscal by more than half a percentage point thanks to a normal monsoon and improved exports, virtually admitting that it may have been too pessimistic in October when it pegged the number at less than 4 per cent.

Finance minister P Chidambaram had led India's strong protests against IMF's assessment, which was made amid economic gloom and a depreciating currency.

This Year International Monetary Fund (IMF) released its World Economic Outlook report on 21 January 2014. The IMF projected the Indian economy’s growth at 4.5 percent for 2013-14 which is much less than ASEAN countries such as Indonesia, and Philippines. IMF in its earlier report in October 2013 had projected that Indian economy would grow by 3.8 percent in 2013-14. The lower growth rate of 3.8 percent was caused due to global slowdown and domestic factors like interest rates.

However, with India receiving a favourable monsoon and higher export revenues since October 2013, the growth in the second largest economy of Asia picked up. The growth is expected to firm further on strong structural polices supporting investment. The economic growth rate can expand up to 5.4 percent and 6.4 percent in next two fiscals. The ASEAN countries Indonesia, Malaysia, Philippines, Thailand and Vietnam had grown by 5.7 percent in 2012. The Economic growth in Indonesia and the Philippines are due to strong fundamentals such as strong consumption and investment, diversified exports and low policy rates.
IMF sees growth rising to 5.4 per cent in 2014-15 and 6.4 per cent in the year after, which is lower than the respective 6.2 per cent and 7.1 per cent recovery forecast by its Bretton Woods twin, the World Bank.

The estimate for 2014-15 is marginally higher than the October forecast of 5 per cent. The fund said global activity strengthened in the second half of 2013 and expects it to gather pace thanks to a recovery in advanced economies. It sees 2014 calendar growth at 3.7 per cent against 3.6 per cent estimated earlier, which is forecast to rise to 3.9 per cent in 2015.

"The basic reason behind the stronger recovery is that the brakes to the recovery are progressively being loosened. The drag from fiscal consolidation is diminishing. The financial system is slowly healing. Uncertainty is decreasing," said Olivier Blanchard, IMF chief economist. The report - Is the tide rising? - warns that "downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain".

Conclusion-

India's growth potential remains high but its macroeconomic vulnerabilities – high headline inflation, an elevated current account deficit, and rising pressure on fiscal balances. The IMF projected the Indian economy’s growth at 4.5 percent for 2013-14 which is much less than ASEAN countries such as Indonesia, and Philippines. The IMF’s main goal is to ensure the stability of the international monetary and financial system. It helps resolve crises, and works with its member countries to promote growth and alleviate poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical assistance and training, and lending. These functions are underpinned by the IMF’s research and statistics. The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. It also seeks to assess the impact of the policies of individual countries on other economies.