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India is likely to witness a larger-than-expected fall in its economic growth rate at 5.4 per cent in 2012-13 but it should pick up to six per cent in next fiscal, the International Monetary Fund (IMF) said today.
"In 2011-12, India's growth rate was 6.5 per cent. That figure is expected to drop to 5.4 per cent in 2012-13. Despite the poor outlook for the global economy, this is a far larger drop than might be expected," the IMF said releasing its annual country report following its consultations on India.
The government last month revised downward the economic growth for fiscal 2011-12 to 6.2 per cent from the earlier estimate of 6.5 per cent. In its report, the IMF Executive Board Directors said India's growth has slowed markedly due to structural and cyclical factors, while inflation remains at elevated levels. RBI has recently lowered country's GDP forecast to 5.5 per cent in 2012-13 as against 5.8 per cent estimated earlier.
'A common response to slow growth is the use of countercyclical fiscal or monetary policy, but this is inappropriate for India, IMF said. High inflation means there is little room to cut interest rates, while India's fiscal deficit means that controlling, rather than raising, spending is a priority, it added.
The government has already moved to lower fuel subsidies, which disproportionately benefits richer people. It will need to do more to free sufficient resources for 12th Plan priorities, including a comprehensive reform of fuel subsidies, the IMF said.
It said though the growth is projected at 5.4 per cent for 2012-13, but it should pick up to six per cent in 2013-14. The economy grew by 5.4 per cent in the first half of the current fiscal. It is likely to grow by 5.7 per cent in the current fiscal, which would be a decade's low.
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