The International Monetary Fund (IMF) has lowered India's economic growth forecast to 6.9 per cent in 2012, from an earlier projection of 7 per cent, on weak global and domestic demand. It also put India's growth during 2013 at 7.3 per cent.
Although the expected slowdown is marginal, it boosts the case for the decision by the Reserve Bank of India to cut its benchmark interest rate by a greater than expected half a percentage point. India does not only need to prevent the economy slowing down, it must maintain a high rate of growth to continue to lift millions of people out of poverty and improve living standards — even if the rate cut may stoke inflation.
According to the IMF, in emerging Asia, including India, strengthening domestic demand will require improving conditions for private investment by addressing infrastructure bottlenecks and enhancing governance and public service delivery. Much of this is within the control of the government but will require the exercising of strong political will. Government's efforts to modernise and clean-up the Indian bureaucracy and business regulation have become bogged down by special interest groups at great cost to the economy and to India's ambitions as an emerging economic power.
