New Delhi: The International Monetary Fund (IMF) on Tuesday called for accelerated economic reforms for India to achieve a higher growth trajectory, while retaining its GDP growth projection of 7.2% for 2017-18.
In its biannual World Economic Outlook (WEO), it increased India’s growth estimate for 2016-17 to 6.8%, from 6.6% estimated in January, while maintaining that economic activity had slowed primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the currency exchange initiative.
India’s statistics department has estimated economic growth in 2016-17 at 7.2%.
The Narendra Modi government announced withdrawal of high-value currency on 8 November, the full economic impact of which is yet to be thoroughly ascertained.
The Asian Development Bank (ADB) earlier this month said India’s economy is set to grow at 7.4% in financial year 2017-18 against 7.1% the previous year, on the back of a pick-up in consumption demand and higher public investment.
IMF’s projection makes India the fastest growing major economy in 2016-17, with China estimated to have grown at 6.7% during 2016. China’s economy is expected to steadily slow down to 6.6% in 2017 and 6.2% in 2018 due to the “complex process of rebalancing" by reorienting demand from exports and investment in consumption.
The report said India’s medium-term growth prospects are favourable, with growth expected to rise to about 8% over the medium term due to implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies.
Global growth has been raised marginally to 3.5% in 2017 from the January estimate of 3.4% due to a “long-awaited cyclical recovery in investment, manufacturing and trade" that may take it to 3.8% by 2022, driven by an “acceleration of activity in India resulting from the implementation of important structural reforms, and a successful rebalancing of China’s economy to lower, but still high, trend growth rates."
The IMF cautioned that inward-looking policies threaten global economic integration and the cooperative global economic order, which have served the world economy, especially emerging market and developing economies, well.
The outlook said India’s economy has grown at a strong pace in recent years owing to the implementation of critical structural reforms, favourable terms of trade, and lower external vulnerabilities.
“Beyond the immediate challenge of replacing currency in circulation following the November 2016 currency exchange initiative, policy actions should focus on reducing labour and product market rigidities to ease firms’ entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labour," IMF said.
“Policy actions should also consolidate the disinflation under way since the collapse in commodity prices through agricultural sector reforms and infrastructure enhancements to ease supply bottlenecks; boost financial stability through full recognition of non-performing loans and raising public sector banks’ capital buffers; and secure the public finances through continued reduction of poorly targeted subsidies and structural tax reforms, including implementation of the recently approved nationwide goods and services tax," it added.