IMF sees Indian economy growing at 7.3% in FY19
MAIN HURDLES Fund flags higher oil prices, tax revenue shortfalls as key risks NEW DELHI:
India is on track to hold its position as one of the world’s fastest-growing economies as reforms start to pay off, according to the International Monetary Fund (IMF).
The $2.6 trillion economy was described by Ranil Salgado, the IMF’s mission chief for India, as an elephant starting to run, with growth forecast at 7.3% in the fiscal year through March 2019 and 7.5% in the year after that. The nation accounts for about 15% of global growth, according to the Washington-based fund.
Key risks flagged by the IMF in its annual Article IV assessment of the economy include higher oil prices, tightening global financial conditions and tax revenue shortfalls.
Authorities should take advantage of stronger growth to bring down debt levels, simplify the consumption tax system and continue to gradually tighten monetary policy, it said.
India’s central bank raised the repo rate for the second straight meeting last week by 25 basis points to 6.5%, while warning about the inflationary pressures.
The average inflation is likely to rise to 5.2% in 2018-19 from a 17-year low of 3.6% in the previous fiscal year, the IMF said.
It said inflationary pressures were also exerted by a pick up in domestic demand and recent hike in procurement prices of major crops by the government, as it seeks to win support from farmers ahead of national elections next year.
India’s annual consumer inflation hit 5% in June, staying
THE AVERAGE INFLATION IS LIKELY TO RISE TO 5.2% IN 201819 FROM A 17YEAR LOW OF 3.6% IN THE PREVIOUS FISCAL YEAR, IMF SAID
above the RBI’s medium-term 4% target for an eighth consecutive month.
“The RBI will need to gradually tighten policy further, in response to inflationary pressures, which will help to build monetary credibility,” the IMF said in its annual report.
The current account deficit is forecast to widen to 2.6% of gross domestic product (GDP) in 2018-19, from 1.9% in the previous year, due to higher oil prices and strong demand for imports.
After a shock cash ban in late 2016 and a disruptive nationwide sales tax last year, India’s economy is once again gaining momentum. Growth reached the fastest pace in seven quarters in January through March, and high frequency indicators from purchasing managers’ surveys to auto sales data show the economy is likely to grow above 7%.
The government is due to
release GDP data onAugust 31 for the three months ended June.
A high growth rate may not necessarily resonate with voters in elections next year as they continue to face issues such as unemployment and farm distress.
Continuing structural reforms would be key to high growth, Salgado said in a conference call.
Further rationalization of the goods and services tax (GST) would give maximum benefits, and labour reforms would be an incentive for companies to expand, he added.