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IMF maintains India's FY19 growth at 7.4%; cautions govt on fiscal deficit

Projected to overtake China to be fastest-growing large economy again

Ishan Bakshi  |  New Delhi 

imf, International Monetary Fund

The (IMF) has maintained its forecast for India’s economic growth at 7.4% in 2018-19, which will again make the country the fastest-growing large economy after losing this tag to China by a close margin in 2017-18. For 2019-20, the has projected India to grow at 7.8%. By comparison, the Chinese economy is expected to slow down to 6.4% in 2019, down from 6.6% in 2018.

India is likely to have grown 6.7% in 2017-18, the said. In fact, the projection for 2017-18 is a tad higher than 6.6%, pegged by the second Advance Estimates by the China grew 6.9% in 2017.

Economic activity in India is likely to get a fillip from “strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax,” noted the Fund in its latest World Economic Outlook, released ahead of the IMF-World Bank SPRING meetings. Over the medium term, India’s economic growth is “expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” it added.

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On the government's bank recapitalisation plan, the fund argued that it would "help replenish capital buffers and improve the banking sector’s ability to support growth." But it cautioned that the plan "should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks’ debt recovery mechanisms should be further enhanced." It also cautioned India on its debt, fiscal deficit, and over-leveraged corporate sector.

In 2017, the grew at 3.8% – the fastest expansion since 2011, noted the Fund. With supportive financial conditions, the expects world economic growth to rise marginally to 3.9% in 2018 and 2019.


IMF maintains India's FY19 growth at 7.4%; cautions govt on fiscal deficit

But while advanced economies are expected to grow at 2.5% in 2018, slowing thereafter to 2.2% in 2019, emerging market and developing economies are expected to pick up the slack, growing at 5.1% in 2019, up from 4.9% in 2018.

Global trade is also expected to continue growing at a faster pace than global growth, reversing the trend of the earlier years. The expects world trade volume (goods and services) to grow at 5.1% in 2018, up from 4.9% in 2017.

For India, the Fund has projected inflation at 5% in 2018-19 and 2019-20, while it has upped its forecast for the country’s current account deficit to 2.3% in 2018-19, up from 2% in 2017-18.

It noted that the decline in inflationary expectations had created "room for monetary policy to support activity should downside risks to growth materialize."

But it cautioned that “India’s high public debt and recent failure to achieve the Budget’s deficit target call for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility.”

It further added that “the corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India.”

The downside to the IMF’s global growth projections emanate from a possibility of tightening of financial conditions, waning popular support for global economic integration, growing trade tensions and risks of a shift toward protectionist policies, and geopolitical strains, it noted.

“In emerging market and developing economies, in contrast, growth will remain close to its 2018–19 level as the gradual recovery in commodity exporters and a projected increase in India’s growth provide some offset to China’s gradual slowdown and emerging Europe’s return to its lower-trend growth rate,” it added.

First Published: Wed, April 18 2018. 02:40 IST
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