The International Monetary Fund (IMF) has predicted that India will grow at 7.4 per cent in 2018, and 7.8 per cent in 2019, leaving rival China behind at 6.6 and 6.4 per cent respectively in the two years. It said that with growth picking up after falling sharply in the second quarter of 2017 due to “one-off factors”, the country will re-emerge as one of the fastest growing major economies in 2018 and 2019.
In the latest World Economic Outlook (WEO), IMF has projected the same growth rate it did last October. India's growth rate was 7.1 per cent in 2016, as against China's 6.7 per cent. The latest forecast is unchanged “with the short-term firming of growth driven by a recovery from the transitory effects of the currency exchange initiative and implementation of the national goods and services tax, and supported by strong private consumption growth,” the WEO said. According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance.
“While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness,” the report said. The IMF said main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes.
The WEO said growth in China and India last year was supported by resurgent net exports and strong private consumption, respectively, while investment growth slowed. IMF referred to the projected growth rate for India in 2018 and 2019, which is higher than that of the previous year of 2017, explaining it is due to the strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax. “Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” WEO said. It added that over the medium term, its economy is projected to continue re-balancing away from investment toward private consumption and from industry to services, but non-financial debt is expected to continue rising as a share of GDP, and the accumulation of vulnerabilities clouds the medium-term outlook.
