India has been praised by the IMF for avoiding the worse of the Asianfinancial crisis and that growth has been maintained at a rate close to theaverage seen over the past decade. From a longer-term perspective, however, theIMF said it feels it is important that India does not consider a growth rate of5% to 6% to be the best that can be achieved. The IMF feels that there isconsiderable scope for improving the allocation of resources through structuralreforms, and also for increasing the rate of investment in the economy.

India’s Central Statistical Organization released advanced estimates for2008/09 (April-March) real GDP growth of 7.1 percent. Partly reflecting thedeteriorating global outlook, India’s growth is projected at a moderate 6¼percent in 2008/09 and 5¼ percent in 2009/10. With commodity prices waning anddemand slackening, inflation is expected to fall further to 3 percent (y-o-y)by March 2009 and to 2 percent on average in 2009/10. A mild recovery inportfolio investment has been seen since October 2008 and foreign directinvestment (FDI) has held up relatively well. While reserves have declined thisfiscal year, from a historic peak of USD315 billion in May 2008 to USD252billion as of February 6, 2009, they remain adequate compared to thecountry’s gross financing requirement and imports. The real effectiveexchange rate depreciated by 10 percent and is in line with its equilibriumvalue. Banks, which dominate the financial system, appear well-capitalized,relatively liquid, and have low non-performing assets (NPA) ratios. On February16, 2009, the government issued the 2009/10 interim budget, which targets areduction in the central government headline deficit of ½ percentage pointof GDP.

The IMF commended India on its strong economic performance in recent years,which reflected sound macroeconomic policies and continued progress withstructural reform. It noted that India has confronted the current globaleconomic and financial crisis from a position of strength and has welcomed thecentral bank’s actions to ease monetary policy and stimulate bank lending.Also it supports the authorities’ flexible exchange rate policy, which willhelp the economy to adjust to the global downturn. Furthermore the IMF commendedthe strength and resilience of India’s financial system, reflected infavorable financial soundness indicators and broadly supports the authorities’gradual and cautious approach to capital account liberalization. Also it haswelcomed the authorities’ commitment to trade liberalization and acknowledgedthat the sizeable fiscal stimulus undertaken in 2008–09 should help to supporteconomic growth. For more information on the IMF report on India pleasego to: