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IMF reconfirms India will be the fastest growing nation in 2019

The IMF's latest World Economic Outlook report shows that the country is on track to managing this feat. It expects India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019, in line with its January forecast.

twitter-logo BusinessToday.In        Last Updated: April 18, 2018  | 12:29 IST
IMF reconfirms India will be the fastest growing nation in 2019

Just ahead of Prime Minister Narendra Modi's maiden keynote address at the World Economic Forum summit in Davos in January, the International Monetary Fund (IMF) had given him a huge confidence booster. It had said that India looked set to snatch back the title of the fastest growing major economy in the world from China.

The IMF's latest World Economic Outlook (WEO) report shows that the country is on track to managing this feat. It expects India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019, in line with its January forecast. In fact, according to its data, only Cote d'Ivoire, which falls in the middle income bracket in Sub-Saharan Africa, will grow as fast this year, and in 2019, India is expected to post the highest rate of growth worldwide.

"Growth in India is projected to increase...lifted by strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax. Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivize private investment," said the report.

To remind you, India's growth rate in 2016 was 7.1 per cent against China's 6.7 per cent. But last October, the IMF had lowered India's growth projection to 6.7 per cent, 0.5 percentage points less than its previous two forecasts in April and July, attributing it to demonetisation and the introduction of the GST, which it . Because of this China logged a faster growth in 2017 (6.9 per cent) but is now expected to lag behind India, decelerating from 6.6 per cent in the current year to 6.4 per cent in 2019.

Meanwhile, the WEO's April update predicts that the global economy will "tick up" to 3.9 per cent this year and next, up from 3.8 per cent in 2017, which incidentally "was the fastest since 2011". The report adds that "Growth this broad based and strong has not been seen since the world's initial sharp 2010 bounce back from the financial crisis of 2008-09".

Predictably, Emerging and Developing Asia remains the most important engine of global growth. The ASEAN-5 - Indonesia, Malaysia, Philippines, Thailand, Vietnam - are expected to continue to grow at 5.3 per cent this year but accelerate to 5.4 per cent in the following year.

While the IMF lauded India's recent progress on structural reforms - like GST, "which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance" - and maintained that the medium-term growth outlook for us is strong, it also flagged off an important challenge: Inclusiveness. "The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labor market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes," the report explained.

It added 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.

The WEO also put the spotlight on India's NPA crisis and the mushrooming banking frauds. "The corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India," it said, adding, "The recapitalization plan for major public sector banks announced in 2017 will help replenish capital buffers and improve the banking sector's ability to support growth. However, recapitalization 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."

Even though World Bank pegs India's growth rate at 7.3 per cent for India this year and 7.5 per cent for 2019 and 2020, the medium term outlook for the globe at large is depressing. "Growth-at-Risk analysis suggests that risks to medium-term growth, stemming from easy financial conditions, remain well above historical norms," said the IMF, predicting a decline to about 3.7 per cent courtesy threats like trade wars, climate change, geopolitical tensions and cybersecurity breaches.

"Tighter financial conditions in the United States would have spillovers to other economies, including through a reduction in capital flows to emerging markets... Anxiety about technological change and globalization is on the rise and, when combined with wider trade imbalances, could foster a shift toward inward-looking policies, disrupting trade and investment."

The recent import restrictions announced by the US, the retaliatory actions by China and potential retaliation by other nations only make matters worse.

 

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