IMF cuts its India growth outlook to 6.7%
Fund sees mediumterm recovery due to reforms
The International Monetary Fund (IMF) on Tuesday pared its growth forecast for India by half a percentage point to 6.7% for 2017, blaming the lingering disruptions caused by demonetisation and the rollout of the goods and services tax.
International Monetary Fund (IMF) on Tuesday pared its growth forecast for India by half a percentage point to 6.7% for 2017, blaming the lingering disruptions caused by demonetisation of high-value banknotes in November and the rollout of the goods and services tax (GST) in July.
The Fund, however, said the structural reforms undertaken by Prime Minister Narendra Modi’s government would trigger a recovery, delivering above 8% growth in the medium term.
In its latest World Economic Outlook (WEO), IMF said the world economy is experiencing a cyclical upswing that began midway through 2016. It raised the global growth estimate marginally for 2017 to 3.6% while flagging downside risks. The upward revisions in its growth forecasts, including for the euro area, Japan, China, emerging Europe and Russia, more than offset downward revisions for the US, the UK and India.
“In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the midyear introduction of the countrywide Goods and Services Tax,” the WEO said.
IMF expects India’s economy to recover sharply in 2018 to grow 7.4%, still 30 basis points lower than its earlier estimate in April. One basis point is one-hundredth of a percentage point.
In its South Asia Economic Focus (Fall 2017) released on Monday, the World Bank reduced India’s GDP growth forecast to 7% for 2017-18 from 7.2% estimated earlier, blaming disruptions caused by demonetisation and the implementation of the GST, while maintaining at the same time that the economy would claw back to grow at 7.4% by 2019-20.
Both the Asian Development Bank as well as the Organisation for Economic Cooperation and Development (OECD) have also cut their growth projections for India to 7% and 6.7%, respectively, for fiscal 2017-18.
IMF said a gradual recovery in India’s growth trajectory is a result of implementation of important structural reforms. GST, “which promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8% in the medium term,” it added.
The multilateral lending agency said India needs to focus on simplifying and easing labour market regulations and land acquisition procedures, which are long-standing requirements for improving the business climate. It also called for bridging the gender gap in accessing social services, finance and education to accelerate growth in developing countries like India.
IMF said given faster-than-expected declines in inflation rates in many larger economies, including India, “the projected level of monetary policy interest rates for the group is lower than in the April 2017 WEO.”