The International Monetary Fund forecast on Tuesday said that India's economic growth rate will shrink to 3.8% this year as the corruption-hit government struggles to restore investor confidence ahead of elections,but hoped that stronger exports should help India's growth rate jump back to 5.0% in 2014, the IMF said in its latest World Economic Outlook survey.
IMF lowered its forecast for this fiscal year by almost two percentage points to 3.8%, citing "lacklustre activity in manufacturing and services" and higher interest rates that have deterred business borrowing.
The IMF also warned that inflation is expected to stay high at almost 11% this year and nine% in 2014, driven by continued high food prices and the latest forecast is down from the 5.6% growth for 2013 it predicted in July for Asia's third largest economy.
India's finance minister P. Chidambaram said the economic downturn was no reason to think that his Congress party, which has been weakened by years of fractious coalition rule and a string of corruption scandals, would be ousted in a national election that must be held by May.
INDIA HONEST wonders why the number 2 or 3 in the cabinet ranking, is so motto explaining the status of Congress party after 2014 election ? Or as an intelligent politician, he is able to read what is written on the wall.
Chidambaram said a jump in spending on fuel and food subsidies must be tackled sooner rather than later as part of a series of steps to stabilise the economy. India imports nearly 80 per cent of its oil needs and the rupee's drop has made government fuel subsidies more costly. he said," On the government side, sooner (rather) than later we will have to address the issue of higher subsidies than budgeted, on both fuel and food,"
"Don't write us off so easily," he said, adding that the next leader of the Congress party would be Rahul Gandhi, scion of the Nehru-Gandhi dynasty that has ruled India for most of its 66 years since independence.
India recorded five% growth last year, the slowest in a decade, and far below the "Indian Summer" of the last decade, when annual growth regularly topped eight and nine percent.
The Congress-led government is trying to turn the economy around, ahead of next year's polls, but has been mired in graft scandals and policy paralysis that have sunk its popularity and sent foreign investors fleeing. The finance minister's vow to contain the deficit means there will be little room ahead of a tough election to spur growth, which has slumped from a double-digit pace in early 2010 to below 5.0 per cent, its lowest in a decade.
The government recently introduced a plan to distribute cheap food for two-thirds of the population, a step widely seen as wooing voters ahead of the election. But - without giving details - Chidambaram pointed to food subsidies as one area where spending would need to be addressed in coming months.
The exodus of funds has greased the fall of India's rupee, which hit record lows in recent months before recovering some of its losses, and pushed up the price of imports, threatening already high inflation.
India's inflation surged to a six-month high in August of 6.10%, strengthening the central bank's case for a freeze on interest rates, despite calls from business leaders to drop rates to help kick-start investment and boost growth.
INDIA HONEST confirms the earlier understanding that this UPA 2 has lost its mandate due to its indulgence in corruption related matters for long years and its subsequent fall on economy and governance.