Washington, April 11 (IANS) Growth in India is expected to be moderate but remain above trend, with GDP growth projected at 8.25 percent in 2011 and 7.75 percent in 2012, the International Monetary Fund (IMF) forecast Monday.
Infrastructure will remain a key contributor to growth in India, and corporate investment is expected to accelerate as capacity constraints start to bind and funding conditions remain supportive, it said in its April 2011 World Economic Outlook (WEO).
However, with continued rapid growth, inflation is expected to continue increasing this year across much of developing Asia, it said noting inflation pressure is most evident in India.
Despite some moderation, inflation has become more generalised in India and is projected to remain high - averaging 7.50 percent this year, the WEO said. In other parts of developing Asia, inflation is lower but is on the rise.
The WEO said even though growth has moderated from cyclical highs to more sustainable rates, Asia continues to outpace other regions.
But signs of overheating are starting to materialise in a number of economies, including India, it said while noting that continued high growth has meant that some economies in the region are now operating at or above potential.
Credit growth is accelerating in some economies like Hong Kong, India, and Indonesia, while it remains high in China.
Most of the increase in headline inflation in recent months in Asia has been due to a spike in food prices, but core inflation has also been increasing in a number of economies, most notably India, the WEO said.
Capital flows to some larger emerging market economies, including India, Brazil, China, and Indonesia are all within the range of or above pre-crisis levels. In many of the major emerging market economies headline inflation is now exceeding 6 percent, up from 5.75 percent in January 2010 - excluding India, the increase in inflation rate amounts to 1.25 percentage points.
In India, the CPI for industrial workers suggests that inflation fell from about 16 percent in January 2010 to less than 10 percent in December 2010, helped by less food price inflation on account of post-drought recovery in agricultural output.
Nonetheless, inflation has remained stubbornly high and well above the central bank’s stated objective, the WEO said.
India’s output is about 7 percent higher than pre-crisis level, the WEO said. India, Brazil, Colombia, Indonesia, and Turkey have experienced a noticeable pickup in real credit growth, generally close to or well into a 10 to 20 percent range.
In India, credit growth has just begun to increase again, after a boom through much of 2007 was followed by a sharp slowdown during 2008-09.
Nonetheless, from a five-year perspective, per capita real credit growth has been very buoyant, with much flowing into real estate and large infrastructure projects, the WEO said.
Many emerging market economies will need to tighten policies to lower the risk of a hard landing, the IMF said suggesting economies like India and Brazil with high public debt should take advantage of strong cyclical conditions to improve their public balance sheets.
The upturn in headline inflation across many emerging and developing economies has coincided with a pickup in commodity prices since mid-2010. In particular, higher food prices have contributed significantly to higher inflation.
This reflects the pass-through of world food prices, but also - in some significant cases, including China and India - higher prices in local food markets, such as for fresh fruit and vegetables, the IMF said.