WASHINGTON, FEB 10, 2013: THE CSO might have its own set of reasons to peg India's current year growth to 5% but the findings of latest annual health check conducted by economists of the International Monetary Fund, seem to be supporting the views of the Finance Minister, Mr P Chidambaram. As per the IMF report, for the various domestic reasons, India's growth may come down from 6.5% to 5.4%.

Between 2004–11, a period amid the global financial crisis when India’s growth averaged 8.3 percent a year. High growth and higher incomes added to demand, especially for food, electricity, and transportation.This growth outpaced new investment in power plants, roads, and coal production. India’s 12th Plan calls for major investments in infrastructure, health, and education, as well as for continued poverty reduction, but IMF economists suggest reforms to facilitate investment especially in infrastructure together with lower costs to do business, as key to restore high growth.

Though the government has already taken significant steps to restore growth, for example by laying out a plan to cut the losses of local power companies, creating the Cabinet Committee on Investment, and relaxing some restrictions on foreign direct investment.But more needs to be done. To sustain India’s long-term energy needs,it will require solving complicated problems related to coal (which powers most of India’s electricity plants), will require facilitating the acquisition of land to widen roads or build new ones.

To overcome slow growth use of counter-cyclical fiscal or monetary policy approach is inappropriate for India. High inflation reveals that there is slight space to cut interest rates, while the country’s fiscal deficit (forecast to be 8.7 percent this year the highest among major emerging markets) means that controlling, rather than raising, spending is a priority.As the government has already moved to lower fuel subsidies, which disproportionately benefit richer people it will need to do more to free sufficient resources for 12th Plan priorities, including a comprehensive reform of fuel subsidies.

The IMF has warned regarding threats posed by the financial sector as the number of nonperforming loans has risen, and the current slowdown raises the prospect that this trend will continue for some time.In the long run, ensuring India’s financial system is able to underwrite strong growth will require pushing forward with financial reforms, such as developing the corporate bond market and gradually lowering government mandated purchases by banks of government debt.