India’s GDP growth to exceed China’s by more than 1%: Here’s why IMF is bullish

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New Delhi | Updated: April 13, 2016 11:35:01 AM

Driven by private consumption and increased industrial activity, India's growth is projected to notch up to 7.5% in 2016-17, overtaking China's GDP by more than 1 per cent, the IMF said.

IMFIMF cut its 2016 global growth forecast for the fourth time in the past year to 3.2%, citing China’s slowdown, persistently low oil prices and chronic weakness in advanced economies. This was down from 3.4 per cent projected in January. (Reuters)

With strong growth and rising real incomes, the International Monetary Fund (IMF) sees India as a bright spot in the world economy. At a time when it has revised the world growth forecast for the current year, the IMF is confident about India’s economic prospects.

Driven by private consumption and increased industrial activity, India is projected to notch up to 7.5% growth in 2016-17, overtaking China’s GDP by more than 1 per cent, the IMF said. Incidentally, IMF upgraded its China growth forecast by 0.2 percentage points for this year and the next to 6.5% and 6.2%, respectively.

IMF cut its 2016 global growth forecast for the fourth time in the past year to 3.2%, citing China’s slowdown, persistently low oil prices and chronic weakness in advanced economies. This was down from 3.4 per cent projected in January.

Why is IMF bullish on India and it’s growth potential? We take a look at what makes it see India as a growth pillar in a dwindling world economy and the measures it thinks are necessary to sustain the momentum:

Recovery of Private investment & consumption: Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes, feels IMF. With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth, it adds.

Inflation: “In India, lower commodity prices, a range of supply-side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nominal interest rate cuts,” says IMF, warning that upside risks to inflation could necessitate a tightening of monetary policy.

Moreover, IMF highlighted some of the essential reforms for standout growth that India must ensure. Among these are:
Reforms measures: While acknowledging that the Indian economy will be the fastest growing in the world, IMF has suggested some measures that the government should take to achieve growth potential. “Fiscal consolidation should continue, underpinned by revenue and labor market reforms and further reductions in subsidies,” says IMF.

Infrastructure: According to IMF, “Sustaining strong growth over the medium term will require dismantling of infrastructure bottlenecks, especially in the power sector.”

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