Now, IMF sees ray of hope in Modi govt

Raises FY15 growth estimate to 5.6%

A day after the World Bank spoke of the “(Prime Minister Narendra) Modi dividend”, the International Monetary Fund (IMF) on Tuesday said this financial year, growth in India’s gross domestic product (GDP) would stand at 5.6 per cent, owing to the favourable policies of the National Democratic Alliance government. It retained its FY16 growth estimate at 6.4 per cent.

In April, the IMF had estimated GDP growth this financial year at 5.4 per cent.

“India has recovered from its relative slump and, thanks in part to policy and a renewal of confidence, growth is expected to exceed five per cent again,” IMF chief economist Olivier Blanchard said in a statement released by the Fund on Tuesday.

In a report released on Monday, the World Bank had also pegged growth for 2014-15 at 5.6 per cent and for 2015-16 at 6.4 per cent.

The IMF provided GDP growth estimates at both market prices (including indirect taxes) and at factor cost (excluding indirect taxes). It also forecast economic growth for 2014 and 2015, as well as financial years 2014-15 and 2015-16.

“Growth in India is expected to increase in the rest of 2014 and 2015, as exports and investment continue to pick up and more than offset the effect of an unfavorable monsoon on agricultural growth earlier this year. The outlook is slightly stronger for 2014, relative to that in the April 2014 WEO (World Economic Outlook), and unchanged for 2015,” it said.

“In India, growth increased in the second quarter due to rising business confidence and stronger manufacturing activity since the elections,” it said.

For the June quarter, GDP growth stood at a two-year high of 5.7 per cent.

The IMF said the immediate risks to its outlook stemmed from a sharp tightening of global financial conditions, triggered by volatility due to US monetary policy normalisation or a rise in global risk aversion, which could lead to capital outflows, asset price declines and higher domestic interest rates. The risk, it added, was more in countries such as India, which depended on external financing to a greater extent.

Several years of slow growth indicated it was time for major emerging markets to adopt important structural reforms to raise growth robustly, the IMF said.

In India, it said, infrastructure bottlenecks in the power sector should be removed and reforms implemented in the segments of education, labour, etc, to raise competitiveness and productivity.

“The post-election recovery of confidence in India provides an opportunity for that country (India) to embark on its much-needed structural reforms,” the IMF said.

It added with the recent monetary tightening, disinflation would continue in India. However, overall inflation would remain high, at 7.8 per cent, this year, before falling to 7.5 per cent in 2015, it said.

The Reserve Bank of India aims to bring Consumer Price Index-based inflation down to eight per cent by January 2015 and six per cent by January 2016.

“Monetary normalisation should proceed gradually in most of the region’s economies, given (economic) slack is negligible and, in some cases, inflation is still high,” the IMF said.