India to see investment, consumption powered growth, but must tackle headwinds first: IMF

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Washington | Updated: April 18, 2015 11:41:51 AM

However, to live up to expectations of being the 'new bright spot' in Asia, India must tackle headwinds, says IMF.

Indian economy, land bill, land acquisition bill, India bank credit growth, India economic growth, GDP growth rate, GDP growth, International Monetary Fund, IMF, India, economy news, nation newsIndia’s growth is likely to strengthen to 7.5% in 2015 and 2016 (from 7.2% in 2014), benefitting from recent policy reforms and lower oil prices.

Growth is expected to pick up in India due to increased investment and consumption but the country needs to tackle land acquisition issues and poor bank credit growth for it to live up to the expectations of being the ‘new bright spot’ in Asia, the International Monetary Fund (IMF) said on Friday.

India’s growth is likely to strengthen to 7.5% in 2015 and 2016 (from 7.2% in 2014), benefitting from recent policy reform announcements and lower oil prices (India, being a net oil importer), Changyong Rhee, IMF’s director of the Asia Pacific department said. He added that early implementation of the reforms will reinforce confidence and increase potential growth. Gradual fiscal consolidation would strengthen resilience in India and other Asian countries where debt is high, he said, adding that decline in oil prices provides an opportunity to phase out subsidies to make room for infrastructure and social spending.

Kalpana Kochhar, Deputy Director in the Strategy, Policy and Review Department of the IMF, said growth in India would come from investment proposals already approved by the government in addition to increased consumption, but the fall in bank credit growth (at 12.6% in 2014-15, the lowest since 1995-96) and high non-performing assets ratio of banks (likely to rise from 4.5% in December 2014 to 5.7% by March 2016) are areas of concern.

Meanwhile, the Reserve Bank of India governor Raghuram Rajan said he was hoping for at least 10 years of massive infrastructure spending in India for the country to be in the high growth trajectory. “We (India) need to ensure better financing of infrastructure projects,” he said.

Rajan, however, added that it was also important to ensure that land acquisition is done the right way. There have been some instances where land acquisition by stealth had led to opposition from farmers and in turn creating opportunities for politicians to exploit the sensitive issue, he said.

Recently, the controversial land acquisition ordinance was repromulgated even as the opposition parties and farmers are protesting the amendments proposed by the Modi government to the land acquisition Act including doing away with the provision for obtaining consent of 80% of the affected people prior to acquisition as well as doing away with the social impact assessment clause.

On other suggestions to ensure a sustained high growth, Rajan said it was important to ensure that domestic demand is the main driver of growth rather than solely depending on an export-led growth strategy. “By all means we should export more, but there is a large internal market and we should develop it,” Rajan said, adding that the major growth areas include services sector, especially those that are technology-based.

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