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Washington: The International Monetary Fund (IMF) in the latest World Economic Outlook (WEO) has said that India is expected to grow at 7.4 percent 2018 and 7.8 percent in 2019. On the other hand, the projection for China is 6.6 and 6.4 percent in the two years respectively.
With growth picking up after falling sharply in the second quarter of 2017 due to “one-off factors”, India in 2018 and 2019 would re-emerge as one of the fastest growing major economies, it said.
However, the latest IMF growth rate projection remains unchanged since the last one in October 2017. India’s growth rate in 2016 was 7.1 percent as against China’s 6.7 percent. China with 6.9 percent growth jumped marginally ahead of India in 2017.
According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance.
“While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness,” the report said. India’s high public debt and recent failure to achieve the budget’s deficit target call for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility, it added.
Referring to the projected growth rate for India in 2018 and 2019, which is higher than that of the previous year of 2017, the IMF explained this is due to the strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax.
“Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” the WEO said.
Meanwhile, the IMF also said that the corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India. Balance sheet vulnerabilities pose a downside risk to medium-term growth prospects in many emerging market economies, requiring policy action, it said.
“The corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India,” the report further said. According to it, the recapitalisation plan for major public-sector banks announced in 2017 will help replenish capital buffers and improve the banking sector’s ability to support growth.
On the other hand, regarding the world economy, the IMF stated – “The global economic upswing that began around mid-2016 has become broader and stronger. This new report projects that advanced economies as a group will continue to expand above their potential growth rates this year and next before decelerating, while growth in emerging market and developing economies will rise before levelling off. For most countries, current favourable growth rates will not last. Policymakers should seize this opportunity to bolster growth, make it more durable, and equip their governments better to counter the next downturn.”
(With PTI inputs)