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India economic growth forecast axed

International Monetary Fund has lowered India’s economic growth rate forecast to 8.2% for 2011 and warned that boom like conditions could lead to overheating of the economy.

The IMF in its World economic Outlook reported that "The challenges for many emerging and some developing economies to ensure that present boom like conditions do not develop into overheating over the coming year.”

The multilateral lending agency had earlier projected the country's economy to grow by 8.4% in 2011.

IMF took note of the high inflation in India recorded at 8.31% in February even as RBI expects it to come down to 8% by March-end.

IMF said that "Signs of overheating are starting to materialize in a number of economies. Most of the increase in headline inflation in recent months has been due to a spike in food prices but core inflation has also been increasing in a number of economies most notably India. Commodity prices have increased more than expected reflecting a combination of strong demand growth and a number of supply shocks. These increases conjure the specter of 1970 style stagflation but they appear unlikely to derail the recovery."

According to the international multilateral organization the inflationary pressure is likely to increase further as high food and energy prices would require an increase in wages.

On global growth trends IMF said Asia would outpace other regions on the back of strong export performance, buoyant private domestic demand besides rapid credit growth.

It said the financial conditions continued to improve after the global crisis although they remained unusually fragile.

IMF said "In many emerging market economies, demand is robust and overheating is a growing policy concern. Developing economies particularly in sub Saharan Africa have also resumed fast and sustainable growth."

It added that "given the improvement in financial markets buoyant activity in many emerging and developing economies and growing confidence in advanced economies economic prospects for 2011-2012 are good."

However it retained its projection for global economic growth at 4.5 % in 2011 and 2012 which is lower than 5% growth it projected for 2010.

(Sourced from financialexpress.com)

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