With the IMF projection of India’s GDP growth at 7.3% in the financial year 2018-19, the country is seen reclaiming the fastest growing economy tag from China with at least 0.7 percentage points. The IMF projection for the Chinese economic growth is 6.6% this calendar year.
The international body praised reforms such as Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC) while asking India to focus on three important areas to rebuild its fiscal buffer to help reduce any damage to the GDP in case of unforeseen crisis. The IMF said India needs to reduce its debt burden, reduce subsidies and enhance GST compliance.
Fiscal buffer needed to avert damage to GDP
The world body said that in India, a high-interest burden and risks from rising yields require continued focus on debt reduction to establish policy. Meanwhile, efforts should also be made towards reductions in subsidies and enhancing GST compliance.
“Public debt has increased in emerging markets over the past decade and is projected to increase further in many of the largest economies over the next five years. This highlights the need to preserve and rebuild buffers,” the IMF said in World Economic Outlook, October 2018 edition.
“Strong fiscal positions before the global financial crisis helped lessen damage to GDP in its aftermath,” the IMF added.
India-China GDP forecast: a comparison
While the IMF kept GDP growth projection for FY19 intact, the international body lowered the projection by 0.1 percentage point for the financial year 2019-2020 from 7.5% to 7.4%, given the recent increase in oil prices and the tightening of global financial conditions.
IMF GDP growth forecast (April vs October)
Meanwhile, China, which beat India by 0.2 percentage points in FY18 by clocking GDP growth of 6.9% to retain its fastest growing economy tag, is projected to witness an economic slow down to 6.6% in 2018 and 6.2% in 2019. The IMF has cut China’s GDP growth projection from 6.4% to 6.2% in 2019 in its October outlook edition.
However, in FY19, India is expected to make an impressive growth acceleration to 7.3% from 6.7% in the previous fiscal year, which the IMF said, reflects a rebound from transitory shocks (the currency exchange initiative and implementation of the GST), with strengthening investment and robust private consumption.