Projecting a growth rate of 4.6 per cent this year, the International Monetary Fund (IMF) on Thursday said the Indian economy is likely to expand by 5.4 per cent on stronger global scenario, improving export competitiveness, a favourable monsoon and a confidence boost after recent policy actions.
The multilateral agency also sees inflation, driven by food prices, remaining near double digits in 2014-15. It also said tight monetary policy is likely to slow growth recovery.
“Growth is projected at 4.6 per cent for fiscal year 2013-14, and should pick up to 5.4 per cent in 2014-15 (at factor cost),” the IMF said in its report after concluding annual discussions with India.
Stronger global growth, improving export competitiveness, a favourable monsoon and a confidence boost from recent policy actions should deliver a modest growth rebound, it added.
“However, fiscal restraint and a tighter monetary stance will act as headwinds, slowing the recovery,” IMF said.
Finance Minister P. Chidambaram in his interim budget on last Monday had said economy was picking up and 6 per cent growth was doable in the 2014-15.
Stressing that the economy is more stable now than what it was two years ago, he had said, “Efforts must be to ensure that this upturn remains an upturn ...towards our goal of 6 per cent in 2014-15. It’s doable.”
The IMF said consumer prices based inflation is expected to remain near double-digits well into next year, driven by high food inflation that feeds into wages and core inflation.
Well-entrenched inflation expectations, a weaker rupee and ongoing energy price increases are other factors that could push up the consumer price index (CPI), IMF said.
Retail inflation, as measured by consumer price index, fell to 24-month low of 8.79 per cent in January mainly due to a drop in food prices.
The Reserve Bank factors both, retail and wholesale price based, inflation data in its monetary policy. Recently, an RBI appointed committee has suggested the central bank should focus on CPI inflation and aim to bring it down to 8 per cent by year, and to 6 per cent by 2016.