IMF FORE­CASTS IN­DIA'S GDP TO GROW AT 7.5 PER CENT IN 2019/20 FIS­CAL YEAR

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TIn­dia's GDP is poised to grow by 7.3 per cent in the 2018-19 fis­cal and 7.5 per cent in 2019-2020 on strength­en­ing of in­vest­ment and ro­bust pri­vate con­sump­tion, the IMF said in its lat­est pro­jec­tion. The In­ter­na­tional Mon­e­tary Fund (IMF), in the re­port, said the neart­erm macroe­co­nomic out­look for In­dia is "broadly favourable." Growth is fore­cast to rise to 7.3 per cent in fis­cal year 2018/19 and 7.5 per cent in 2019/20 on strength­en­ing in­vest­ment and ro­bust pri­vate con­sump­tion, the re­port said. Head­line in­fla­tion is pro­jected to rise to 5.2 per cent in fis­cal year 2018/19, as de­mand con­di­tions tighten, along with the re­cent de­pre­ci­a­tion of the ru­pee and higher oil prices, hous­ing rent al­lowances and agri­cul­tural min­i­mum sup­port prices, it said. The cur­rent ac­count deficit is pro­jected to widen fur­ther to 2.6 per cent of the GDP on ris­ing oil prices and strong de­mand for im­ports, off­set by a slight in­crease in re­mit­tances, the re­port said. It said that fi­nan­cial sec­tor re­forms have been un­der­taken to ad­dress the twin bal­ance sheet prob­lems, as well as to re­vive bank credit and en­hance the ef­fi­ciency of credit pro­vi­sion by ac­cel­er­at­ing the cleanup of bank and cor­po­rate bal­ance sheets. "Sta­bil­ity-ori­ented macro-eco­nomic poli­cies and progress on struc­tural re­forms con­tinue to bear fruit" in the coun­try, the re­port said. It said fol­low­ing dis­rup­tions re­lated to the Novem­ber 2016 cur­rency ex­change ini­tia­tive and the July 2017 Goods and Ser­vices Tax (GST) roll­out, growth slowed to 6.7 per cent in fis­cal year 2017/18, but a re­cov­ery is un­der­way led by an in­vest­ment pickup. Head­line in­fla­tion av­er­aged 3.6 per cent in fis­cal year 2017/18, a 17-year low, re­flect­ing low food prices on a re­turn to nor­mal mon­soon rain­fall, agri­cul­ture sec­tor re­forms, sub­dued do­mes­tic de­mand and cur­rency ap­pre­ci­a­tion. The re­port rec­om­mended that con­tin­ued fis­cal con­sol­i­da­tion is needed to lower el­e­vated pub­lic debt lev­els, sup­ported by sim­pli­fy­ing and stream­lin­ing the GST struc­ture. Fur­ther, while im­por­tant steps have been taken to im­prove the recog­ni­tion of Non-Per­form­ing As­sets (NPAs) and re­cap­i­talise Pub­lic Sec­tor Banks (PSBs), more needs to be done. "A re­cent large fraud at a PSB high­lights fi­nan­cial sec­tor weak­nesses and un­der­scores the need for the govern­ment to take fur­ther steps to im­prove the PSBs' gov­er­nance and op­er­a­tions, in­clud­ing by con­sid­er­ing more ag­gres­sive dis­in­vest­ment," it said. With de­mand re­cov­er­ing and ris­ing oil prices, medium-term head­line in­fla­tion has risen to 4.9 per cent in May 2018, above the mid-point of the Re­serve Bank of In­dia (RBI)'s head­line in­fla­tion tar­get band of about four per cent. How­ever per­sis­tently-high house­hold in­fla­tion ex­pec­ta­tions and large gen­eral govern­ment fis­cal deficits and debt re­main key macroe­co­nomic chal­lenges. "Sys­temic macro-fi­nan­cial risks per­sist, as the weak credit cy­cle

could im­pair growth and the sov­er­eign bank nexus has cre­ated vul­ner­a­bil­i­ties," the re­port said. Eco­nomic risks are tilted to the down­side, the re­port said, adding that on the ex­ter­nal side, risks in­clude a fur­ther in­crease in in­ter­na­tional oil prices, tighter global fi­nan­cial con­di­tions, a re­treat from cross bor­der in­te­gra­tion in­clud­ing spill over risks from a global trade con­flict, and ris­ing re­gional geopo­lit­i­cal ten­sions. "Do­mes­tic risks per­tain to tax rev­enue short­falls re­lated to con­tin­ued GST im­ple­men­ta­tion is­sues and de­lays in ad­dress­ing the twin bal­ance sheet prob­lems and other struc­tural re­forms," it said. IMF Ex­ec­u­tive Board Di­rec­tors wel­comed the strong eco­nomic growth and com­mended the In­dian author­i­ties for the im­por­tant and wide-rang­ing re­forms. While not­ing the broadly pos­i­tive out­look, the di­rec­tors ob­served that risks are tilted to the down­side from ex­ter­nal fac­tors, such as higher global oil prices and tighter global fi­nan­cial con­di­tions, as well as do­mes­tic fi­nan­cial vul­ner­a­bil­i­ties. Against this back­ground, they un­der­scored the need for con­tin­ued pru­dent macroe­co­nomic poli­cies and re­newed em­pha­sis on macro­fi­nan­cial and struc­tural re­forms. IMF's mis­sion chief for In­dia Ranil Sal­gado told PTI that In­dia is a source of growth for the global econ­omy for the next few decades and it could be what China was for the world econ­omy. "In­dia now con­trib­utes, in pur­chas­ing power par­ity mea­sures, 15 per cent of the growth in the global econ­omy, which is sub­stan­tial," Sal­gado said.

IMF's Mis­sion Chief for In­dia Ranil Sal­gado

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