Calling for renewed efforts to revive India's flagging structural reform agenda, the IMF today said governance concerns have weakened business sentiment in the country.
IMF's Asia-Pacific Regional Economic Outlook released today pointed out that domestic factors have also played a role in India's growth slowdown over the second half of 2011.
"Concerns about governance and slow project approvals by the government have weakened business sentiment, which in turn has adversely affected investment, along with cyclical factors such as global uncertainty and policy tightening...," the multilateral agency said.
IMF also emphasised on the need for renewed efforts to revive the flagging structural reform agenda.
Apart from some financial reforms and measures to broaden the use of public-private partnerships announced in the 2012-13 budget, the implementation of reforms related to infrastructure is likely to proceed slowly, it noted.
IMF has lowered India's growth forecast to 6.9% for 2012 from 7% projected in January.
"In India, the lowered growth outlook in 2012 owes much to a slowdown of investment which partly reflects structural factors," it said.
However, the multilateral agency has retained India's growth estimate at 7.3% for 2013. As per the IMF, the national economy grew 7.1% last year.
According to the IMF, steps to improve investment climate, remove infrastructure bottlenecks and expand education opportunities, are needed to boost reforms.
"It is also important for India to make progress in reducing barriers to trade, in order to maximise the potential of its continuing demographic dividend ," IMF said.
On price rise, the multilateral agency stressed that fiscal consolidation is the key to containing inflationary pressures and creating space for priority development needs.
Headline inflation declined to 6.89% in March, from 6.95% in February.
"Consolidation efforts should focus on limiting nonpriority spending, including fuel-related subsidies, while providing more room for public investment and health and education," the report said.
READ MORE ON IMF, governance, business sentiment, Asia-Pacific Regional Economic Outlook, domestic factors, financial reforms, 2012-13 budget, infrastructure
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