The International Monetary Fund (IMF) slashed its 2012 growth forecast for India to 6.1 percent from 6.9 percent, and lowered its 2013 forecast to 6.5 percent from 7.3 percent, FirstPost reports.
The revision came amid a mid-year reassessment of the global economic outlook in which the lending agency said emerging markets -- once the lone bright spot for the world economy -- are now being dragged down by the problems plaguing Europe.
The IMF said an associated reduction in exports, combined with earlier policies designed to slow inflation and prevent emerging market economies from overheating, would hit economic growth harder than it previously expected, FirstPost said.
The IMF reduced its 2013 forecast for global growth to 3.9 percent from the 4.1 percent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent, the website reported.
Though India's projections -- at 6.1 percent and 6.5 percent -- may look good to nations expecting zero expansion or full-on recession, this is particularly bleak news here because of India's rapidly expanding working-age population. As GlobalPost reported earlier, India needs to grow at 9 or 10 percent to provide jobs for the young people joining the work force each year -- and a lot of its existing growth doesn't create jobs at all.
“A lot of the income growth is coming from people selling their land,” said Bibek Debroy, an economist at the New Delhi-based Center for Policy Research. “That's part of the India story, for better or for worse. Parts of India are getting urbanized. So I have a plot of land that is valuable, and I sell it off.”
Real estate gains — which don't create jobs — accounted for an unhealthy part of India's economic growth in the fourth quarter, when it slipped to 5.3 percent. Worse still, India needs to grow at nearly twice that rate to keep its head above water. Because of its expanding population, it needs to create about 12 million new jobs a year to employ the young people entering the work force — which might just be possible at a 9 percent clip, according to Debroy.
But even that's only the tip of the iceberg. To lift some 600 million farm laborers out of poverty, or near to it, India needs more than simple industrialization, it needs a complete metamorphosis. And over the past three months, its nascent manufacturing sector contracted instead of growing.
“The question is not whether we're growing faster than the rest,” said Dharmakirti Joshi, chief economist at Crisil, the India arm of the credit agency, Standard & Poor's. “The question is whether we're growing fast enough to solve our problems. Clearly, we are not.”