Home World Economy IMF trims India’s growth forecast to 7.2 per cent for 2017

IMF trims India’s growth forecast to 7.2 per cent for 2017


NEW DELHI: 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 per cent, just ahead of China’s 6.7 per cent for 2016 calendar. IMF has retained its India growth forecast for FY18 at 7.2 per cent and FY19 at 7.7 per cent, well ahead of its forecast for China.

In its January review, the Fund had slashed India’s growth estimate to 6.6 per cent for FY17, below China’s growth rate for 2016, citing demonetisation disruptions.


According to WEO, the global economy is expected to do better with 3.5 per cent growth in 2017 against 3.1 per cent 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 per cent and 6.2 per cent growth forecast, respectively, against earlier estimate of 6.5 per cent and 6.4 per cent , and, together with Russia and India, it will lift emerging market growth. The US is likely to grow 2.3 per cent in 2017 and 2.5 per cent in 2018 against 1.6 per cent 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.

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, with growth forecast to rise to about 8 per cent 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 per cent 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 agricultural sector 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.

ET View: Drive innovation
It’s possible that the successful rollout of GST, improved ease of doing business and a more focused development delivery mechanism would boost the growth momentum. The way ahead is to shore up innovation and efficiency gains across the board, so that stakeholders can innovate and adapt quickly to changing environments. The world’s most innovative economies put policy emphasis on sustained productivity improvements across industries and sectors, which lead to government effectiveness, business sophistication and give rise to creative goods and services.


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