The Indian economy is expected to recover significantly by next year on account of the series of policy decisions taken by the government, a top International Monetary Fund (IMF) official said on Friday.
"(India's) growth will recover significantly next year," Anoop Singh, director for the Asia Pacific department at the IMF, told reporters on the sidelines of the IMF's annual plenary meeting.
He was responding to questions on the latest projection by the World Economic Outlook of the IMF, which has projected a steep fall in the Indian growth rate to about 3.8 per cent for the current fiscal year (FY14).
Finance Minister P Chidambaram had said on Thursday that he did not share the IMF's "pessimism".
"We expect these measures to show their impact from the second half of the current fiscal and believe that the Indian economy will grow at over 5.0 per cent and perhaps closer to 5.5 per cent in 2013-14," he had said.
(Read: FM says IMF growth forecast 'pessimistic')
Mr Singh explained that the difference between perceptions by the Indian officials and the IMF is only a matter of few quarters as it wants to give India some time to see the results of the positive policy decisions taken by the Union Cabinet.
"There are always lags. There has been monitory tightening. There are shocks from external forces. So the question is how quickly India responds. We think they will take a few quarters. By next year it (growth) should be well above four and half and well above five (per cent)," he said.
He said the Indian government recently has taken a lot of measures.
"The main difference in our prediction, it is going to take a few quarters in our view. I hope we are wrong. The recovery comes much faster," he said.
Earlier, the IMF in a report had said that the recent financial stress in India has contributed to greater vulnerability of corporate and bank balance sheets and a further downward revision of growth forecasts.
"In India, the fallout from recent financial stress has likely contributed to greater vulnerability of corporate and bank balance sheets and a further downward revision of growth forecasts, which were already very low in historical context," the IMF said in its October 2013 update of the Asia and Pacific Economic Outlook report.
"This reflects persistent supply constraints and slow progress on structural reforms. Despite weak demand, however, food prices will likely keep headline inflation close to double digits," the IMF said.
According to the report, Asia has not been spared by the recent re-pricing of financial assets in emerging markets, encountering a wave of capital outflows in the past few months.
The overall impact has, so far, been manageable although some countries have been subject to greater stress, it said. Tighter global liquidity--and homegrown structural impediments in some countries--will weigh on growth, but for most economies the impact should be partly offset by a gradual pickup in exports to advanced economies and resilient domestic demand, the IMF report said.
"If, however, conditions tighten further we are likely to see even greater differentiation across the region. Those with strong fundamentals and policy credibility will be able to offset imported tightening through lower policy rates and fiscal support," the IMF said.
Others that have delayed reforms, left fiscal vulnerabilities untackled, or tolerated too-high inflation may be forced to respond with a procyclical policy tightening.
"Announcing credible medium-term reforms would rebuild confidence and ease policy trade-offs," it said.
India and Indonesia have seen more concerted pressure and, to support their currencies, have responded with increases in policy rates, tightening liquidity conditions and, in India's case, further opening up to capital inflows, the report said.
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