The Economic Advisory Council (EAC) of the Prime Minister envisages a 6.4 per cent growth in fiscal 2014, close to the budget target,(6.1to 6.7 per cent) as against IMF projection of 5.7 per cent rising to 6.2 per cent in 2015 and ADB’s 6 per cent for 2013. Indeed, the IMF projected growth rates for India are lower than those for Bangladesh and Sri Lanka, let alone Indonesia.

The preliminary forecast of a normal monsoon in 2013 should be reassuring for policy planners and economy watchers for the present, even if in July-September, aberrations may surface. There is no doubt WPI headline inflation has declined to below 6 per cent and the “core” inflation leaving out food and fuel, was at 4.07 per cent in March, close to comfort level, as noted by EAC.

But FM virtually ignoring food inflation at elevated levels in rural and urban areas all the time has been laying stress on inflation continuing its decline. His repeated plea for RBI easing policy in the immediate is echoed by his Chief Economic Adviser Raghuram Rajan who sees “a case for RBI to cut interest rate”.

Dr C Rangarajan agrees slowdown in industrial production is bottoming out, WPI inflation showing a decline and the fiscal consolidation process is ongoing. While the central bank has some elbow room in its choice of the pace at which it may seek to adjust the monetary stance, Dr Rangarajan says, it has to bear in mind how inflation behaves in subsequent months. Domestic growth conditions suggest more easing, he adds, but the external payments situation also needs to be borne in mind.

Whatever the scale of expectations in Government and corporates which would like a cut in the range of 50 basis points to one percentage point in the repo rate now at 7.5 per cent, the RBI Policy Statement will seek to provide a fuller picture of the growth-inflation dynamics and provide its own indicative targets for 2013/14. As noted by EAC itself, corrections have to be made to administered products - fertilisers and electricity - all of which would add to WPI inflation which would further impinge on currently high CPI inflation.

New support prices for foodgrains would also see an upward revision when cereal prices for the consumer have already been in double digit. Thus, without a whole range of supply side and other measures to improve trade balance and moderate the current account deficit, of which not much has been heard, the monetary policy role would appear to be circumscribed.

In its Asia-Pacific Regional Outlook, IMF says Asia as a whole faces better prospects for growth to pick up after last year’s subdued economic performance. But IMF makes an exception of India in inflationary trends in the region remaining within central banks’ explicit or implicit comfort zones. In South Asia, notwithstanding a modest growth recovery in India on a more favorable external demand environment, ”deep-rooted structural challenges are expected to exert a substantial drag on potential growth while keeping inflation at elevated levels by regional standards”.

India is also among the Asian emerging economies included in an IMF case study on whether they are shifting to lower growth trend. Slower growth in China from 10 to 8 per cent and India from 8 to 6 per cent and Vietnam, along with low growth in advanced economies; and imminent demographic aging across large parts of East Asia have raised concerns in recent years about risks of a sustained growth slowdown in emerging Asia

Related to this, IMF has also emphasised the importance of structural and other reforms and increased TFP (Total Factor Productivity) for countries to avoid a “middle-income trap”. The priorities for this include economic rebalancing, strengthening infrastructure investment, reforms in goods and labour markets, and meeting the challenges from rapid demographic change.

IMF has also indirectly cautioned against countries relying too much on strong capital inflows and investment booms by stating that while these are good for growth, they also entail risks of bust further down the road, “ because “boom-bust cycles can have long-lasting adverse effects on living standards, avoiding them can support trend growth.”. Mr Chidambaram has been talking of India hitting high growth of the pre-crisis period over the medium term, a record which has been proved to be an extension of the global boom cycle.

What is India’s potential growth? IMF’s projection for the longer term is 7 per cent while Mr Chidambaram has talked of 8 per cent as the potential which India could get over the next two years. Dr Anoop Singh. Director of IMF Asia Department, says a recovery from low growth in India is beginning and “our sense is clearly India has the potential (for 7 per cent). For 2014, growth would be already rising to over 6 per cent. It is for India to accelerate project approvals and deal with the overhang of projects not approved yet, he adds.

Asia’s policymakers face a delicate balancing act in the near term: guarding against a buildup of financial imbalances and managing a transition to rebuilding policy space while delivering appropriate support for growth. China’s rapid credit growth is cited. Against the backdrop of uncertain growth prospects, Asian central banks in 2012 maintained their already low policy rates or reduced them further.

With inflation remaining low and stable, this accommodative stance has been welcome, the Regional Outlook said.. But financial imbalances are often persistent and cannot be easily unwound, and output levels are close to or slightly above trend in most economies. Hence, monetary policymakers should stand ready to respond early and decisively to any prospective risks of overheating.

On Direct Benefits Transfer (DBT), pre-election drum-beat of the UPA, IMF has welcomed India’s move but cautions that the integration of Aadhaar and direct cash transfers promises subsidy savings but would involve many challenges. The timeframe for bringing India’s population of 1.2 billion into the Aadhaar program could extend beyond 2014, and integrating this database with information on individuals eligible for subsidized fuel will take time. Shifting the fertilizer subsidy from companies to individual farmers and building up the capacity to deliver payments electronically could also be challenging in such a large country.

Any reform to scale down food and energy subsidies, IMF said, would also need to include compensatory measures to alleviate the adverse impact of price increases on poor households, which could be substantial. For example, according to some estimates, a $0.25 per liter rise in fuel prices could reduce household real income by about 4 percent in Bangladesh and 3 percent in Sri Lanka .Cash transfer programmes need careful preparation and -monitoring, requiring a considerable amount of data and administrative capacity. Identifying the most vulnerable households is particularly challenging, it said. (IPA Service)