India will fail to achieve growth levels strong enough to eradicate poverty, the International Monetary Fund (IMF) has predicted.

In fact, even a growth rate of 5.5% in the year to March 2003 would assume "a modest recovery in the industrial sector", the Fund said.

The growth rate is slightly above last year's 5.4% rate, but well below the 8% growth rate required to lift the Indian people out of poverty, the IMF said.

"Attainment of the authorities' 8% economic growth objective, which is the key to sustained poverty reduction, will depend critically on the pace of progress with fiscal consolidation and structural reform," the IMF said.

Indebted nation

Also weighing on India's growth prospects were its debts, the IMF said.

A weak farm sector and a slowdown in the service sector have both held back growth.

In addition, the government's deficit is among the highest in the world and its debts represent 80% of its gross domestic product.

The IMF said it was "particularly concerned that recent trends - large primary deficits, growing debt, and the sharp narrowing of the growth rate/interest rate differential - are creating conditions for potentially unsustainable debt dynamics".

The government's weak financial situation could "entrench the cycle of decelerating growth.

The IMF treatment

To reverse the recent declines in economic growth, the Fund recommended budgetary cutbacks and a broad restructuring of the economy to encourage foreign investment.

Two key areas that the IMF claims India needs to speed up are the privatisation of government enterprises and the liberalisation of labour laws.

India's trade unions and farmers have been highly critical of the IMF's policies and have tried to persuade the government to resist adopting them.