IMF lowers India's growth forecast to 6.9% on investment slowdown

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Cautioning that governance concerns have weakened business sentiment in the country, the IMF on Friday lowered India's growth projection to 6.9 per cent for 2012.

The International Monetary Fund (IMF) in January pegged Indian economic growth to expand 7 per cent for this year.

"In India, the lowered growth outlook in 2012 owes much to a slowdown of investment which partly reflects structural factors," the multilateral agency said. IMF called 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's Asia-Pacific Regional Economic Outlook released today also pointed out that domestic factors too have 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," IMF said.

However, the multilateral agency has retained India's growth estimate at 7.3 per cent for 2013. As per the IMF, the national economy grew by 7.1 per cent last year.

IMF also called for steps to improve investment climate, remove infrastructure bottlenecks and expand education opportunities, thereby boosting 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 per cent in March, from 6.95 per cent in February.

"Consolidation efforts should focus on limiting non-priority spending, including fuel-related subsidies, while providing more room for public investment and health and education," the report said.