IMF forecasts India GDP growth at 6.75 pct in 09/10

It forecast wholesale price inflation of 8.1 percent at the end of the 2009/10 year in March, and expected it to ease to 5.5 percent the following year.

"Private consumption would benefit from better employment prospects and less uncertainty, and investment would be boosted by robust corporate profits, rising business confidence, and favourable financing conditions," the IMF's executive board said in a statement on Thursday.

The IMF expects agricultural growth to contract by 1 percent in 2009/10 due to drought, and said the non-agriculture sector would be the key driver for growth recovery.

"With India's long-term prospects remaining strong and private sector balance sheets sound, we expect growth to be back at potential in 2010/11 even if advanced economies grow below trend," IMF said.

The agency said elevated inflation and financing constraints arising from high fiscal deficits were near-term downside risks.

"Near-term risks are broadly balanced. On the upside, an acceleration of reforms and capital inflows could spur investment," IMF said.

India's central bank last week raised its 2009/10 GDP growth forecast to 7.5 percent from 6 percent, and lifted its inflation forecast to 8.5 percent by end-March from 6.5 percent earlier.

Directors of the IMF executive board considered the time to be ripe for a "progressive normalisation" of the monetary stance by the central bank.

Last week, the Reserve Bank of India raised the cash reserve requirement for banks, but left interest rates unchanged.

India is scheduled to present its budget for fiscal year 2010/11 on Feb. 26, when it will announce its borrowing needs and other fiscal estimates.