THE WORLD OUTLOOKS AT INDIAN ECONOMY

Country/ Region	2009 Forecast *	2010 Forecast *	Country/ Region	2009 Forecast  *	2010 Forecast *
World	4.6	4.3	Emerging and developing economies	6.8	6.4
Advanced economies	2.6	2.4	Commonwealth of Independent States	4.3	4.3
United States	3.3	2.9	·         Russia	4.3	4.1
Euro Zone	1	1.3	·         Excluding Russia	4.4	4.7
·         Germany	1.4	1.6	Asia	9.2	8.5
·         France	1.4	1.6	·         China	10.5	9.6
·         Italy	0.9	1.1.	·         India	9.4	8.4
·         Spain	(0.4)	0.6	·         ASEAN-5 **	6.4	5.5
Japan	2.4	1.8	Middle East and North Africa	4.5	4.9
United Kingdom	1.2	2.1	Sub Saharan Africa	5	5.9
Canada	3.6	2.8	Brazil	7.1	4.2
Other advanced economies	4.6	3.7	Mexico	4.5	4.4

(* Year on year percentage change)                        (**Indonesia, Malaysia, Philippines, Thailand and Vietnam)

At a time when the fears of a double dip recession has been plaguing the markets world over, the International Monetary Fund's (IMF) upward revision of its estimates for the world economy has comes as a welcome surprise. This is based on high frequency indicators (like industrial production, merchandise exports, manufacturing purchasing index to name a few), which have been pointing to a diminishing rate of decline in the global output. The good news is that the forces pulling the economy down are decreasing in intensity but the bad news is that the forces required to pull the economy up are still weak.

World economic growth is driven by the Asian region led by China and India, due to economic activity which has been sustained by continuous rise in exports and private domestic demand. Exports have been boosted by the global and domestic inventory cycles and by recovery of final demand in some advanced economies. Private fixed investment has strengthened on the back of higher capacity utilization and low cost of capital. For the third consecutive quarter IMF has upgraded India’s economic growth forecast. IMF forecasts a 9.4% growth in 2010 indicating that it is confident that growth will be a robust one. The government’s own economic growth projection for the year to March 2011 is 8.5%, while that of Citi and Icrier are 8.6% and 8.4% respectively. According to IMF, India’s growth is likely to be driven by corporate investment on account of strong profitability and easier availability of credit.

IMF forecasts growth during the December 2010 quarter to be a sizzling 10.3% year-on-year. This is more than its forecast of China's growth rate of 9.8% during the same quarter, making India's growth rate the highest during the quarter among all the countries listed by IMF in its update to the World Economic Outlook.

However, central bank in India and other emerging economies can't afford to take it easy. IMF data shows that core inflation continues to accelerate. IMF retaining India’s 2011 growth forecast at 8.4%, has hedged its current estimates by pointing out that there remain sharp downside risks on account of weaknesses in developed economies. It cautioned that further measures in global risk aversion, especially in the euro zone, could cause capital outflows from the Asian region thereby affecting the liquidity in these markets and weakening of equity valuations. That could, in turn, undermine favorable financing conditions and hamper the domestic demand.