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IMF retains India's growth forecast, cuts global projection

India's growth pegged at 7.5% for 2016-17; global economic expansion estimated at 3.2%

Imf,india's Growth

BS Reporter  |  New Delhi 

Image via Shutterstock
Image via Shutterstock

The International Monetary Fund (IMF) on Tuesday retained India's growth projections for 2016-17 at 7.5 per cent, while it cut global economic expansion by two percentage points to 3.2 per cent for 2016 and one percentage point to 3.5 per cent in 2017.

According to IMF, India’s growth will continue to be driven by private consumption “which has benefited from lower energy prices and higher real incomes”.

In its World Economic Outlook, IMF, however, cautioned India that sustaining growth would require labour reforms as well as reducing infrastructure bottlenecks.

In 2016-17, India’s growth would be higher than China’s by 1.3 percentage points. The country has overtaken China since 2014-15, becoming the fastest growing large economy in the world. For 2015-16, India’s growth was pegged at 7.5 per cent, a shade lower than official estimate of 7.6 per cent.

Retaining its October 2015 forecast for India, IMF said, “With the revival of sentiment and pick-up in industrial activity, a recovery of private investment is expected to further strengthen growth.”

IMF retains India's growth forecast, cuts global projection
The World Economic Outlook report noted that in India, monetary conditions remain consistent with achieving the inflation target of five per cent in the first half of 2017, although an unfavourable monsoon and an expected public-sector wage increase pose upside risks. However, India Meteorological Department has predicted the monsoon to be above normal this year.

In India, lower commodity prices and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation making room for nominal interest rate cuts, but upside risks to inflation could necessitate a tightening of monetary policy, the Fund said.

“Fiscal consolidation should continue, underpinned by revenue reforms and further reductions in subsidies. Sustaining strong growth over the medium-term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector,” said IMF.

In FY15, India’s growth was 7.3 per cent, which would increase to 7.5 per cent each in the next two years of 2016-17 and 2017-18, the IMF said.

IMF said the global economy faced headwinds from weak growth and rising protectionism and warned of possible “severe” damage if Britain quit the European Union.

At the same time, the IMF report projected a decline in China's growth rate from 6.9 per cent in 2015 to 6.5 per cent in 2016 and 6.2 per cent in 2017.

“China, now the world's largest economy on a purchasing- power-parity basis, is navigating a momentous but complex transition toward more sustainable growth based on consumption and services," it said.

The report said given China’s important role in global trade, “bumps along the way could have substantial spillover effects, especially on emerging market and developing economies”. According to the report, the re-balancing process in China might be less smooth than assumed in the baseline scenario.

“A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalised slowdown in the global economy, especially if it further curtailed expectations of future income.”

The global economy will grow at 3.2 per cent in 2016 and 3.5 per cent in 2017, IMF said, scaling down its earlier forecast of 3.4 per cent and 3.6 per cent, respectively.

“Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” IMF Economic Counsellor Maurice Obstfeld told reporters at a conference in Washington while releasing the report, according to PTI.

“The new World Economic Outlook anticipates a slight acceleration in growth this year, from 3.1 to 3.2 per cent, followed by 3.5 per cent growth in 2017. Our projections, however, continue to be progressively less optimistic over time,” the agency quoted Obstfeld as saying.

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First Published: Wed, April 13 2016. 00:40 IST