ID :
29310
Sun, 11/09/2008 - 19:15
Auther :
Shortlink :
http://m.oananews.org//node/29310
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'IMF growth forecast for India is below its potential growth'
Sridhar Krishnaswami
Washington, Nov 9 (PTI) Appreciating measures taken by
India to deal with the global financial crisis, the
International Monetary Fund (I.M.F.) has said the 6.3 percent
growth forecast for the country is considerably below its
potential growth.
"For India we have marked our forecast down to 6.3
percent of 2009 calendar year. That is considerably below what
we consider to be India's potential growth," I.M.F. Deputy
Director for Asia Pacific region, Kalpana Kochhar, told PTI.
"There is a specific meaning to "potential"-- it is the
rate at which you can grow without causing inflation. And for
India we estimate that to be 7.5 percent to 8 percent. Our
forecast of 6.3 percent would put it quite a bit below the
potential," Kochhar added.
Kochhar was talking in the context of the latest update
issued by the Fund on the Global Economic Outlook which spoke
of a deep dive in the economic growth of several advanced
countries as well as countries in the Asia Pacific taking a
hit on account of the global financial tumult.
She said that measures taken by the Indian government
and the Reserve Bank of India (R.B.I.) to tackle the financial
crisis were in right direction.
"In terms of policy measures taken in India so far, I
think they have all been in the right direction-- the easing
of the cash reserve ratio and the statutory liquidity ratio
combined with the lowering of interest rates have been in the
right direction. It is the direction of providing the market
with liquidity. The Reserve Bank of India has announced the
facility to provide dollar liquidity and that is also in the
right direction" she said.
"We have a forecast for Asia which is basically strong
relatively speaking. We have around 5 percent which is slow
for Asia but not relative to other emerging markets. That is
because Asia is open and so linked to the U.S., the Euro area
and Japan which are all experiencing significant
contractions," she said.
The drive down in the vale of the Indian Rupee vis-a-vis
the American dollar is nothing related to country-specific
factors rather on account of global de-leveraging, she added.
"What that really means is that we don't therefore see
the huge risk of inflation. We think that the inflation risk
has dissipated quite a lot, not only because of the obvious
reason of commodity prices but also in India you have this
slowing in growth and therefore a slowing in demand side
pressure."
Noting India's greater integration with global financial
market since 2003, she said the country was relatively but not
completely insulated from the global financial sector.
"Therefore what you are seeing in India now is part of a
global phenomenon of dollar shortages and liquidity shortages"
she said.
"It is not just India; it is happening in a lot of
places. So the challenge for the authorities is to make sure
there is enough Rupee liquidity but also enough dollar
liquidity. Fortunately India's reserve position is still
relatively strong," Kochhar said.
Comparing India's external debt and external payment
obligation and the level of reserves, reserves are more than
adequate to cover 200 per cent of India's external payment
obligations.
The recent drop in the value of the Indian Rupee versus
the U.S. dollar has to do with foreigners pulling out of the
Indian markets and in the opposite of what was taking place in
2007 when the influx of dollars into the country was driving
the value of the Rupee up, the I.M.F. official said adding
this is a phenomenon that is taking place globally as well as
in the Asian region.
"It is happening because foreigners are pulling out of
Indian markets. The upward pressure on the Rupee we talked
about in 2007 was because you had literally USD 100 billion
coming into the country and therefore pushing the Rupee up. We
are in the opposite direction now. You have dollars flowing
out," she said.
"But I want to put it in perspective. It is happening
across the world. It is happening across the region (Asia) and
other regions. The Korean Won, for example, has fallen like
thirty to thirty five percent. The Indian Rupee as well and
other currencies a little bit more or a little bit less. In
countries that there was a big build up in foreign capital
inflows that could have the potential for the biggest
outflow," the senior official added.
However, Kochhar emphasized on the continued
investment in the infrastructure sector and encouraging the
domestic investment in the market for achieving the high
growth rate.
"Unlike many other countries, India's infrastructure
needs are huge. Unless infrastructure investment takes place
the goal of nine or ten percent growth that has been set out
simply cannot be achieved," she said.
"So from the Indian policy makers point of view, what is
the best way to keep investments going? If we cannot rely on
foreign capital to the extent as before, how can we best use
our domestic resources? These are the sorts of questions that
need to be emphasised over the next six to twelve months,"
Kochhar said. PTI SK
Washington, Nov 9 (PTI) Appreciating measures taken by
India to deal with the global financial crisis, the
International Monetary Fund (I.M.F.) has said the 6.3 percent
growth forecast for the country is considerably below its
potential growth.
"For India we have marked our forecast down to 6.3
percent of 2009 calendar year. That is considerably below what
we consider to be India's potential growth," I.M.F. Deputy
Director for Asia Pacific region, Kalpana Kochhar, told PTI.
"There is a specific meaning to "potential"-- it is the
rate at which you can grow without causing inflation. And for
India we estimate that to be 7.5 percent to 8 percent. Our
forecast of 6.3 percent would put it quite a bit below the
potential," Kochhar added.
Kochhar was talking in the context of the latest update
issued by the Fund on the Global Economic Outlook which spoke
of a deep dive in the economic growth of several advanced
countries as well as countries in the Asia Pacific taking a
hit on account of the global financial tumult.
She said that measures taken by the Indian government
and the Reserve Bank of India (R.B.I.) to tackle the financial
crisis were in right direction.
"In terms of policy measures taken in India so far, I
think they have all been in the right direction-- the easing
of the cash reserve ratio and the statutory liquidity ratio
combined with the lowering of interest rates have been in the
right direction. It is the direction of providing the market
with liquidity. The Reserve Bank of India has announced the
facility to provide dollar liquidity and that is also in the
right direction" she said.
"We have a forecast for Asia which is basically strong
relatively speaking. We have around 5 percent which is slow
for Asia but not relative to other emerging markets. That is
because Asia is open and so linked to the U.S., the Euro area
and Japan which are all experiencing significant
contractions," she said.
The drive down in the vale of the Indian Rupee vis-a-vis
the American dollar is nothing related to country-specific
factors rather on account of global de-leveraging, she added.
"What that really means is that we don't therefore see
the huge risk of inflation. We think that the inflation risk
has dissipated quite a lot, not only because of the obvious
reason of commodity prices but also in India you have this
slowing in growth and therefore a slowing in demand side
pressure."
Noting India's greater integration with global financial
market since 2003, she said the country was relatively but not
completely insulated from the global financial sector.
"Therefore what you are seeing in India now is part of a
global phenomenon of dollar shortages and liquidity shortages"
she said.
"It is not just India; it is happening in a lot of
places. So the challenge for the authorities is to make sure
there is enough Rupee liquidity but also enough dollar
liquidity. Fortunately India's reserve position is still
relatively strong," Kochhar said.
Comparing India's external debt and external payment
obligation and the level of reserves, reserves are more than
adequate to cover 200 per cent of India's external payment
obligations.
The recent drop in the value of the Indian Rupee versus
the U.S. dollar has to do with foreigners pulling out of the
Indian markets and in the opposite of what was taking place in
2007 when the influx of dollars into the country was driving
the value of the Rupee up, the I.M.F. official said adding
this is a phenomenon that is taking place globally as well as
in the Asian region.
"It is happening because foreigners are pulling out of
Indian markets. The upward pressure on the Rupee we talked
about in 2007 was because you had literally USD 100 billion
coming into the country and therefore pushing the Rupee up. We
are in the opposite direction now. You have dollars flowing
out," she said.
"But I want to put it in perspective. It is happening
across the world. It is happening across the region (Asia) and
other regions. The Korean Won, for example, has fallen like
thirty to thirty five percent. The Indian Rupee as well and
other currencies a little bit more or a little bit less. In
countries that there was a big build up in foreign capital
inflows that could have the potential for the biggest
outflow," the senior official added.
However, Kochhar emphasized on the continued
investment in the infrastructure sector and encouraging the
domestic investment in the market for achieving the high
growth rate.
"Unlike many other countries, India's infrastructure
needs are huge. Unless infrastructure investment takes place
the goal of nine or ten percent growth that has been set out
simply cannot be achieved," she said.
"So from the Indian policy makers point of view, what is
the best way to keep investments going? If we cannot rely on
foreign capital to the extent as before, how can we best use
our domestic resources? These are the sorts of questions that
need to be emphasised over the next six to twelve months,"
Kochhar said. PTI SK
