India Rebuffs IMF and Predicts Stronger Growth
Oct. 14 – Indian Finance Minister P Chidambaram has strongly rejected the International Monetary Fund’s (IMF) growth forecast for India. Chidambaram has called for a review of the IMF’s methodology and pointed to what he sees as a “significant divergence between its forecasts and final numbers.”
Chidambaram spoke at the IMF’s Plenary Meeting in Washington D.C. on Saturday, where he also called for reform of the fund’s quota system and an improvement of its surveillance mechanisms. Chidambaram pointed out that the IMF had failed to predict the recent global market turmoil. Furthermore, the IMF has still not ratified its 14th Quota Review, meaning that the organization will be much more reliant on borrowing to fund its activities (the IMF is primarily funded through its quota system).
The IMF has predicted a growth rate of 3.8 percent for India throughout 2013-2014, a 1.8 percent downgrade from its previous position. India has countered that it sees no reason to downgrade its growth prospects and is predicting a rate of between 5 and 5.5 percent.
“I would like to ask, respectfully, what is the information that IMF has gathered between July and September, that we do not have, that has impelled the Fund to drastically change the estimate?” responded Finance Minister Chidambaram.
The Indian government has taken numerous steps to ease supply constraints and improve the current investment climate. Additionally, projects totaling US$64 billion have recently been approved and are expected to have a positive effect on the economy. While inflation continues to be a worry, the government has taken steps to bring the inflation level down as well as containing the fiscal and current account deficit.
The government aims to decrease the fiscal deficit from its current level of 4.9 percent to 4.8 percent by 2014. Furthermore, every effort is being made to contain the current account deficit at its level of 3.7 percent of GDP for the current year and to begin bringing that level down to 3 percent by 2016-2017.
Reflecting on his confidence in the Indian economy, Reserve Bank of India Chairman Raghuram Rajan has publicly stated that India will not seek funding from the IMF over the next five years.
“There’s no way we are close to being a country in financial or economic crisis… There’s not a chance we will go to the IMF for money in the next five years,” stated Rajan.
Rajan also pointed out that India was able to cover three-fourths of its current account deficit just by using the gold that it owns. Furthermore, India has a reserve of US$280 billion (15 percent of GDP) with which it would be able to pay three-fourths of debt from its forex reserves.
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