Friday, September 15 2006 11:05 Hrs (IST) - World Time -

Singapore: IMF yesterday (Sept 14,2006) painted a rosy picture for the Indian economy, scaling up GDP growth projection for 2006 to 8.3 per cent against the earlier forecast of 7.3 per cent, but warned that interest rates may have to be pushed up to contain inflation that is projected to touch 5.6 per cent this year.

IMF in its World Economic Outlook, released yesterday, also prescribed that India should broaden tax base and reduce subsidies for fiscal consolidation, since pressure is there on the government to spend more, which is evident from the fact that fiscal deficit shot up in the first four months to over 58 per cent of the target for the whole year.

"In fact, India could even witness higher growth rate than projected on the upside, while on the downside, inflation has picked up with rising oil prices and strong domestic demand," IMF said.

"While the Reserve Bank has raised interest rates in recent months, further tightening may be needed to resist inflationary pressures," the Fund said.

The Reserve Bank had raised its repo rates, at which banks park their short term funds with the central bank, by 0.25 per cent.

The outlook projected slower economic growth rate of 7.3 per cent for 2007, but it is higher than its earlier projection of seven per cent made in April.

The Fund, however, projected lower inflation at 5.3 per cent for 2007.