The International Monetary Fund (IMF) has moderately scaled down India’s economic growth projection to 7.3 per cent for the current financial year from its earlier forecast of 7.4 per cent and suggested that the country should continue to undertake economic reforms, including hire and fire, to create jobs.
The IMF’s new growth projections are bit optimistic than the Reserve Bank of India's (RBI’s) but moderately pessimistic than the World Bank's.
In its World Economic Outlook (WEO), a flagship publication brought out during the annual spring meetings of the IMF and World Bank in Washington, the Fund also revised down its prediction for India’s economic expansion to 7.5 per cent from 7.7 per cent for the next financial year.
For 2018-19, the multi-lateral institution pegged the economic growth at 7.1 per cent, a shade higher than the official projection of 7 per cent by the second advance estimates. In either case, the growth for that year would be the lowest in the five-year tenure of the Modi government.
Despite this, the country will remain the fastest-growing large economy as the nearest competitor China's growth is pegged at 6.6 per cent, 6.3 per cent and 6.1 per cent for 2018, 2019 and 2020, respectively. China's growth for 2019 and 2020 was cut by 0.1 percentage point each.
The downward projections for India are more to do with the revision of growth numbers by the Ministry of Statistics and Programme Implementation (MoSPI) than slowing down activities. “In India, growth is projected to pick up to 7.3 per cent in 2019 and 7.5 per cent in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy,” the IMF said in the WEO, titled “Growth Slowdown, Precarious Recovery”.
It added: “Nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO by 0.1 percentage point for 2019 (2018-19) and 0.2 percentage point for 2020 (2020-21), respectively.”
The MoSPI had revised the country’s economic growth projections on January 31, scaling up growth projections for some years such as the demonetisation year of 2016-17 and 2017-18. Due to revisions, economic growth for 2018-19 was also projected to slow down to 7 per cent in 2018-19 in the second advance estimates.
The hopes of India to grow by 8 per cent in the near future could be dashed if the IMF’s projections come true. The IMF said growth in India is expected to stabilise at just under 7.75 per cent over the medium term, based on the continued implementation of structural reforms and easing of infrastructure bottlenecks.
It said continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economy’s growth prospects.
In the near term, continued fiscal consolidation is needed to bring down India’s elevated public debt.
“This should be supported by strengthening goods and services tax compliance and further reducing subsidies. Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of nonperforming assets under a simplified bankruptcy framework,” it said.
These efforts should be reinforced by enhancing governance of public sector banks.
Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the country’s large demographic dividend; efforts on land reform should be intensified to facilitate and expedite infrastructure development, it added.
India’s growth rates have been revised at a time when the IMF scaled down the global economic growth to 3.3 per cent in 2019 from 3.7 per cent, forecast earlier. Similarly, the growth rate for 2020 was revised down to 3.6 per cent from the earlier 3.7 per cent.
Gita Gopinath, chief economist at IMF, told a press briefing that beyond 2020, global growth is expected to stabilise around 3.5 per cent, bolstered by growth in China and India.