IMF Votes for India, Retains Growth Forecast
Says India still fastest-growing major economy & pegs growth in FY17 and FY18 at 7.5%; expects global economy to grow 3.2% in 2016
New Delhi: The International Monetary Fund (IMF) retained India’s GDP forecast for this fiscal year and the next, confirming its status as the world’s fastest-growing major economy, as it pared global expansion estimates citing weakening worldwide recovery amid increasing financial turbulence.
India’s growth in FY17 and FY18 was pegged at 7.5% in the World Economic Outlook (WEO), the Fund’s flagship publication, unchanged from January.
“Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes,” WEO said. “With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth,” it said of India, in contrast to the gloomy outlook for rest of the world.
The global economy is expected to grow 3.2% in 2016, only margi- nally ahead of 3.1% in 2015 and down 0.2 percentage point from the 3.4% forecast in January.
“Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” said IMF economic counsellor Maurice Obstfeld, calling for an “immediate, proactive response” in a statement.
He said policymakers needed to act in concert to tackle challenges such as more coordination in monetary policy to help reduce financial risks
“To repeat: there is no longer much room for error,” Obstfeld said. “Continuing global cooperation to improve both the functioning of the international monetary system and the stability of international finance are vital for global economic resilience. That work has progressed considerably since the global financial crisis, but there is more to be done.” The IMF blamed the global downgrade on a broad-based slowdown across all country groups while citing financial risks and continuing violent instability in a number of nations as the biggest risks to global economy.
While world growth is forecast to strengthen to 3.5% in 2017, “our projections, however, continue to be progressively less optimistic over time,” Obstfeld said.
Four months into the year, both advanced and emerging economies are expected to grow slower than anticipated at the start of it. Only China gets a bump up, with growth forecast at 6.5% and 6.2% in 2016 and 2017, respectively, up 0.2 percentage point each from the January forecast.
The IMF has called for efforts to strengthen growth and the drawing up of contingency measures in case downside risks materialize, suggesting monetary accommodation for countries fa- cing deflationary pressure.
“For a number of countries, infrastructure investment looks attractive—both from a short- and a long-term perspective—at the currently low real borrowing rates their governments face,” Obstfeld said.
IMF’s long-range forecast sees India growing at 7.8% in FY22, well ahead of others and still the most rapidly accelerating major economy. “Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector,” it said. Lower commodity prices, a range of supply side steps, and a relatively tight monetary policy have yielded a faster-than-expected slowing of inflation, the IMF said, creating room for rate cuts.
However, it cautioned that the “upside risks to inflation” could require tightening of monetary policy. The Reserve Bank of India cut the key rate by 0.25 percentage
But IMF cautions that the “upside risks to inflation” could require tightening of monetary policy
point last week, besides tweaking monetary policy to boost liquidity and thus encourage credit growth. Private investment has been lagging behind government spending and consumption, which have been propping up India’s economy.
India should achieve its 5% consumer inflation target in the first
half of 2017, the IMF said, while flagging poor monsoons and the pay commission wage award as risks. To be sure, the India Meteorological Department forecast an above-normal monsoon this year on Tuesday. The IMF also called for continued fiscal consolidation through revenue reforms and reductions in subsidies.