IMF Report says India Stays Ahead of China in FY17 Growth Rate

IMF Report says India Stays Ahead of China in FY17 Growth Rate

World Economic Outlook has revised upwards India’s growth forecast to 6.8% from 6.6%, just ahead of China’s 6.7%

India will not have to surrender its fastest growing major economy tag to China in the near future and will record slightly higher growth rate than its bigger neighbour for last year despite a slowdown due to demonetisation, International Monetary Fund says.

World Economic Outlook (WEO), the fund’s flagship publication, has revised upwards India’s growth forecast for FY17 to 6.8%, just ahead of China’s 6.7% for 2016 calendar. IMF has retained its India growth forecast for FY18 at 7.2% and FY19 at 7.7%, well ahead of its forecast for China.In its January review, the Fund had slashed India’s growth estimate to 6.6% for FY17, below China’s growth rate for 2016, citing demonetisation disruptions.

GLOBAL RECOVERY

According to WEO, the global economy is expected to do better with 3.5% growth in 2017 against 3.1% in 2016 on the back of better growth in the US and the emerging market pack, but Euro zone is likely to continue to grow at current pace.

China gets a small bump up for both 2017 and 2018 at 6.6% and 6.2% growth forecast, respectively, against earlier estimate of 6.5% and 6.4%, and, together with Russia and India, it will lift emerging market growth. The US is likely to grow 2.3% in 2017 and 2.5% in 2018 against 1.6% in 2016.

“Global economic activity is picking up with a long awaited cyclical recovery in investment, manufacturing, and trade,” IMF said in the report even as it warned that structural impediments to stronger recovery remain, and balance of risk remains on downside.

IMF called for domestic policies to support demand and balance sheet repair where necessary and feasible and credible strategies to reduce public debt others. “The world also needs a renewed multilateral effort to tackle a number of common challenges in an integrated global economy,” it said.

INDIA ACCELERATION

IMF sees an acceleration of activity in India, resulting from the implementation of important structural reforms, after it slowed down in FY17 due to the currency exchange programme. “Medium-term growth prospects are favourable, withgrowth forecast to rise to about 8% over the medium term due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies,” the report said.

IMF had trimmed India’s growth forecast for 2017 by 0.4% points in January, citing temporary negative consumption and payment disruptions from the currency exchange initiative, or demonetisation.IMF has called for policy action in India to reduce labour and product market rigidities, easier setting up of business and exit, bigger manufacturing base, and gainful employment for the abundant pool of labour.

“Policy actions should also consolidate the disinflation under way since the collapse in commodity prices through agriculturalsector reforms and infrastructure enhancements to ease supply bottlenecks; boost financial stability through full recognition of nonperforming loans and raising public sector banks’ capital buffers; and secure the public finances through continued reduction of poorly targeted subsidies and structural tax reforms, including implementation of the recently approved nationwide goods and services tax,” it suggested.

The Business Standard, New Delhi, 23th January 2018