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IMF predicts low growth of 5.8 per cent for India

India appears headed for a slow economic growth this year as its gross domestic product is expected to decline to 5.8 per cent from about 7 per cent in the previous three years, according to the International Monetary Fund.

An interim assessment on the IMF's World Economic Outlook, released in Washington on Sunday, estimates that India's GDP will grow at the rate of 5.8 per cent this year. In sharp contrast, the rate of growth was 6.9 per cent in 1994, 7.4 per cent in 1995 and 6.9 per cent in 1996.

The interim report primarily deals with the Southeast Asian economies which have been facing a serious financial crisis since July which continues to deepen an broaden raising concerns in trade circles the world over.

Undoubtedly, people are going to feel the pain of this adjustment, IMF Chief Economist Michael Mussa said, while briefing the press on the report.

Mussa said it was reasonable to anticipate that there would be a contagion effect of the Southeast Asian crisis in neighbouring South Asia and elsewhere, affecting exports and imports.

He, however, expected that its impact on the performance of India's economy would be relatively limited because the volume of New Delhi's trade with South Asian countries, though significant, was not large.

He also expected a slowdown in the foreign investment in emerging markets in the wake of Southeast Asian crisis. The IMF asked the developing countries to brace against the economic fallout.

The report notes that the crisis has already led to a dramatic slowdown in private capital flows to emerging economies in all regions, with the sharpest drop in Asia. According to the IMF estimate, these flows to developing and newly industrialised economies will drop by 80 billion dollars in 1997 alone.

It says the capital flows to developing countries would remain low in the months ahead as investors become more cautious and as borrowers postpone new issues because of the high cost of accessing the international capital markets.

As the crisis drags on, the IMF feels that other developing countries are more likely to be drawn in.

Noting that many countries are vulnerable to reversals of market sentiment, the IMF says it is, therefore, critical that countries take the necessary steps to reduce their vulnerability.

The IMF has asked developing countries to contain their external deficits and strengthen their banking systems to protect their economies. In some cases, exchange rate policies way need to be changed, it adds.

Though bleak in the near term, the IMF said investor sentiment towards emerging markets would begin to turn around in the course of 1998, and that countries hard hit by the Asian crisis, after a significant slowdown in growth next year, will see a pickup in 1999.

The IMF has scaled down combined growth forecasts for Thailand. Indonesia, Malaysia and the Philippines by 3.7 percentage points to 1.7 per cent for 1998, with a warning that turmoil in Asia would dampen global growth.

For Japan, it predicted only 1.1 per cent in 1998, in south Korea, it was expected to fall to 2.5 per cent next year from six per cent this year.

UNI