Cutting its India growth forecast for the current fiscal by 50 basis points to 6.7%, the International Monetary Fund (IMF) has predicted the country’s consumer price inflation to drop to 3.8% in the current fiscal from 4.5% in 2016-17.
As currencies have stabilised or gained against the dollar since the spring, inflation has continued to decline in many emerging market economies, more recently helped by the decline in oil prices, the Fund said. Disinflation has been more rapid than expected in some countries, such as Brazil, India, and Russia, it added.
Recently, former chief economic adviser Arvind Virmani said in a note that the economy was characterised by high inflation from second half of calendar years 2009 to 2011, in contrast to deflation in 2015 and 2016. “In all three episodes an increase in net imports (imports-exports) seems to have played a role in deceleration/ stagnation.”
“With rising domestic inflows driving the stock market boom, time is most apposite for PSB disinvestment and strategic sale of loss making PSUs. These proceeds must also be used to accelerate public investment in infrastructure,” he had suggested.
The RBI this month raised its inflation target to 4.2-4.6% for the second half of this fiscal from 4-4.5% announced earlier, while it had projected 2-3.5% for the first half. Its medium-term inflation target is 4%+/-2 percentage points.
Of course, the IMF said inflation in India would rise again to 4.9% in 2018-19. The Fund predicted that India’s 2018-19 GDP growth would be 7.4%, down 0.3 percentage points from its July forecast.
The downward revisions in growth reflect “the lingering impact” of the note ban as well as “uncertainty” related to the introduction of the goods and services tax (GST), it said.
India had lost the status of the world’s fastest-growing major economy to China in Q1 of 2017-18 after briefly claiming that coveted tag in 2016-17. The multilateral body raised its growth forecast for the giant neighbour by 0.1 percentage points to 6.8% for 2017. India’s economic growth slid to a 13-quarter low of 5.7% in Q1, FY18.
The Fund, while cutting the India forecast for the current and the next fiscals, however, said GST is among several key structural reforms under implementation that are expected to help push growth above 8% in the medium term.