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

The Economic Times - - Economy - Our Bu­reau

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.

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