IMF forecasts 7.4% growth for India in FY19

IMF forecasts 7.4% growth for India in FY19

On the eve of Prime Minister Narendra Modi's keynote address at the World Economic Forum (WEF) in Davos, the International Monetary Fund (IMF) said India's growth will pick up in FY19. That will see the country regain the tag of fastest-growing major economy, backing the government's revival theme. The IMF also said 2017 saw the best global growth in seven years.

India is forecast to grow 7.4% in FY19 against 6.7% this year, gaining pace to 7.8% in FY20, the IMF said in its January update of the World Economic Outlook: Brighter Prospects, Optimistic Markets, Challenges Ahead that was released simultaneously in Davos and Washington. Modi will address the WEF opening plenary session on Tuesday. The global economy is expected to grow 3.9% this year, faster than 3.7% forecast earlier in October. India's growth remains unchanged from the October forecast.

"Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronised global growth upsurge since 2010," the IMF said. In the current year, China will grow 6.8%, just ahead of India but will slip to 6.6% next year.

The US is forecast to grow 2.7% and 2.5% in 2018 and 2019, respectively, higher by 0.4 and 0.6 percentage point than earlier estimates. According to India's official estimates, the economy will grow 6.5% in the current fiscal with the second half clocking 7% growth. Early corporate results for the October-December quarter have shown a pickup in earnings, providing more evidence of a recovery.

Robust Tax Collections

India has slipped behind China this year owing to the disruption caused by demonestisation and the imposition of GST. Industrial production growth touched a 25-month high of 8.4% in November. Consumer goods leader Hindustan Unilever reported 11% volume growth in the December quarter, indicating a revival in the rural economy. Exports have grown at a fast clip in the last two months amid the global resurgence while automobile sales have been robust.

In December, passenger vehicles sales rose 5.2% from a year earlier to 239,712 units. Sales of commercial vehicles surged 52.6% to 82,362 units, while those of two-wheelers rose 41.5% to 1.29 million units. Meanwhile, stock markets have been surging, hitting successive records over the past few weeks, buoyed by revival prospects and earnings optimism, apart from other factors.

The government has also announced a reduction in extra borrowings it had planned in the January-March quarter following better-than-expected tax collections. "Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9%," the IMF said. "The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes."

The IMF said rich asset valuations and faster-than-expected increases in advancedeconomy core inflation and interest rates, inward-looking policies, geopolitical tensions, and political uncertainty in some countries are key risks to global growth.

IMF director of research Maurice Obstfeld sounded a note of caution. "As the year 2018 begins, the world economy is gathering speed," he said. "This is good news. But political leaders and policymakers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long."

IMF said the cyclical upswing provides an ideal opportunity for reforms. "Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive," the IMF said.

The Economic Times, New Delhi, 23th January 2018