The International Monetary Fund (IMF) and the World Bank on Tuesday predicted a robust 7.6% growth for India in 2016.
The Fund said India would remain the world’s fastest-growing large economy as it raised its growth forecast for the country by 0.2 percentage point from its earlier projections to 7.6% for the current fiscal and the year after that.
The country had also grown 7.6% in 2015-16. IMF said India’s economy continued to recover strongly, “benefiting from a large improvement in the terms of trade, effective policy actions, and stronger external buffers, which have helped boost sentiment”.
“Nevertheless, underlying inflationary pressures arising from bottlenecks in the food storage and distribution sector point to the need for further structural reforms to ensure that consumer price inflation remains within the target band over the medium term,” the Fund said.
While keeping the global growth forecast unchanged at 3.1% for 2016 and 3.8% in the year after, the multilateral body has trimmed its forecast for the US by 0.6 percentage point for 2016 and by 0.3 percentage point for 2017, projecting growth rates of 1.6% and 2.2%, respectively. It says while the advanced economy will see a slowdown in growth, the emerging economies may expand for the first time in six years to 4.2% in 2016, against its July forecast of 4.1%.
However, what should worry India is the fact that the IMF has cut its global trade growth forecasts by 0.4 percentage point for 2016 and 0.1 percentage point (from its July forecast) for the year after that to 3.1% and 3.4%, respectively, and the downward revision of the economic growth projections for the US. India’s merchandise exports have already contracted for 20 of the past 21 months through August, and with its biggest market — the US — likely to witness lower-than-expected recovery, any sharp rebound in India’s export prospects is unlikely any time soon.
On India, the Fund said important policy actions toward the implementation of the goods and services tax have been taken, which will be positive for investment and growth, it said.
“This tax reform and the elimination of poorly targeted subsidies are needed to widen the revenue base and expand the fiscal envelope to support investment in infrastructure, education, and healthcare. More broadly, while several positive measures have been undertaken over the past two years, additional measures to enhance efficiency in the mining sector and increase electricity generation are required to boost productive capacity,” it said in its latest World Economic Outlook.
Continued efforts by RBI to strengthen bank balance sheets through full recognition of losses and raising bank capital buffers remain critical for improving the quality of domestic financial intermediation, it added. Global economic growth will remain subdued this year following a slowdown in the US and Britain’s vote to leave the European Union,” the IMF said.
The report raised the spectre that persistent stagnation, particularly in advanced economies, could further fuel populist calls for restrictions on trade and immigration, it said.
Earlier in the day, after a review of the monetary policy by a panel, the central bank statement echoed some of these concerns observed by the IMF. The RBI statement said: “Global growth has been slowing more than anticipated through 2016 so far, with weak investment and trade damping aggregate demand. Meanwhile, risks in the form of Brexit, banking stress in Europe, rebalancing of debt-fuelled growth in China, rising protectionism and diminishing confidence in monetary policy have slanted the outlook to the downside. World trade volume has contracted sharper than expected in the first half of 2016, and the outlook has worsened with the recent falling off of imports by advanced economies (AEs) from emerging market economies.”
WB forecasts 7.7% growth in 2017
The World Bank on Tuesday said India’s GDP could grow 7.6% in 2016-17 and 7.7% in 2017, supported by “expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term”. However, it added India still faces the challenge of further accelerating the responsiveness of poverty reduction to growth, promoting inclusion, and extending gains to a broader range of human development outcomes.