Internal factors responsible for India ’s declining economic growth: IMF

 

The pullback in growth for some emerging market economies since 2012 is mostly attributable to internal factors. External factors have generally been much less important compared with internal factors for relatively large or closed economies such as China, India and Indonesia

 

International Monetary Fund (IMF) in the WEO chapter on emerging economies reported that India's declining economic growth, which has touched a decade's low of 4.5% in 2012-13 is attributed to mainly internal factors.  India 's economic growth, which was registered at 8.9% in 2010-11 declined to 6.7% in the following year and touched a decade's low of 4.5% in 2012-13. 

 

In India , internal factors began dampening growth in early 2008, likely as the result of tensions from growing bottlenecks in infrastructure after a period of rapid growth. Their negative incidence continued until mid-2009, when internal factors started contributing more to growth again.

 

External factors accounted for half or more of the cyclical fluctuations in EM growth during the past 15 years, but with differences over time and among countries.

 

• These factors dominated in determining the decline in EM growth in the early 2000s and in 2008-09, reflecting the drag from reduced external demand during the two advanced-economy recessions.

 

• In contrast, internal factors were more dominant in strong EM growth uptake in 2006-07, although external factors also helped as commodity prices were strong and EMBI yield low.

 

• During the past two years, internal factors in some EMs have persistently held growth below the level expected given current external conditions.
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In contrast to the favorable external environment that existed before the crisis, during the next few years EMs will need to navigate through conditions that will be less conducive to growth.

 

 

Warm regards,

 

Dr. S P Sharma

Chief Economist