IMF cuts India's FY16 GDP forecast to 7.3%

‘Continued fiscal consolidation is essential, but it should be more growth friendly, in terms of tax reforms and reduction in subsidies’

The International Monetary Fund cut its forecast on India's GDP growth in the current financial year ending March to 7.3% from 7.5% earlier. The multilateral funding agency, however, kept its forecast for India GDP growth in 2016-17 unchanged at 7.5%.

"India's growth is expected to strengthen from 7.3% this year to 7.5% next year. Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices," IMF said in its World Economic Outlook.

On Monday, Economic Affairs Secretary Shaktikanta Das said growth in the Indian economy was set to surpass 7.5% in 2015-16. Growth slowed to 7.0% in Apr-Jun, the first quarter of 2015-16.

India will be the fastest growing large economy and will be among the drivers of global growth in both 2015 and 2016, IMF said. Except India, IMF growth projections are for calendar years.

In India, inflation is expected to decline further in 2015, reflecting the fall in global oil and agricultural commodity prices, IMF said. It has projected average inflation based on Consumer Price Index to fall to 5.4% in 2015-16 from 5.9% last year. India's inflation has fallen to a nine month low of 3.66% in August. The Reserve Bank of India, which is aiming an inflation of 6% by January 2016 and 5% by 2016, has cut the policy repo rate by 50 basis points last week.

India needs to enhance financial sector regulation and strengthen debt recovery in view of the strained balance sheets of the corporate and banking sectors. "Structural reforms should focus on relaxing long-standing supply constraints in energy, mining, and power sectors. Priorities include market-based pricing of natural resources to boost investment, addressing delays in the implementation of infrastructure projects, and improving policy frameworks in the power and mining sectors," it said. -Cogencis