India’s economy will likely grow 7.5% in the next fiscal, compared with 7.3% in 2015-16, helped by a plunge in oil prices and relatively low exposure to the global slowdown, the International Monetary Fund (IMF) said on Wednesday.
Nevertheless, the multilateral body has advised Indian authorities to effect reforms, including implementing a well-designated goods and services tax regime, strengthening prudential regulation for bank asset quality recognition, rationalising food and fertiliser subsidies and facilitating land acquisition.
“With the revival of sentiment and picking up of industrial activity, an incipient upturn in private investment is expected to help broaden the recovery,” the IMF said. Higher public infrastructure investment and government initiatives to tackle supply-side bottlenecks and repair corporate and public bank balance sheets should also help crowd-in private investment, it added.
Inflation was on track and monetary conditions remained consistent with the Reserve Bank of India’s target for consumer price inflation of 5% by March 2017, it said.
However, the multilateral body has flagged concerns, including persistently high household inflation expectations, large fiscal deficits (which could limit policy space to support growth through demand management measures), anaemic exports and weaknesses in India’s corporate financial positions and public bank balance sheets, weighing on the economy.
Finance minister Arun Jaitley on Monday committed R25,000 crore to recapitalise state-run banks, although some bankers have said the recapitalisation requirements are almost 10 times more than the funds budgeted.
“On the external side, despite the reduction in imbalances and strengthening of buffers, the impact from intensified global financial market volatility could be disruptive, including from unexpected developments in the course of US monetary policy normalization or China’s growth slowdown,” the IMF said.
However, absent disruptive global financial market volatility, slower Chinese growth would have only modest adverse spillovers to India, given weak trade linkages, it said.
While the IMF hailed the recent improvements in the quality and efficiency of public expenditure, as well as revenue-enhancing measures, it called on the authorities to implement measures that would underpin the achievement of the medium-term fiscal deficit targets and increase fiscal space for priority capital spending and social expenditures.