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09 October 2018
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| India growth (The Total Investment & Insurance Solutions) |
The International Monetary Fund(IMF) has
retained its India growth forecast for the current year and marginally pared it
for next fiscal, citing the drag from higher crude prices and tightening of the
global financial situation. But it will remain the fastest-growing major
economy, well ahead of China, it said.
In its latest World Economic Outlook, the IMF
said India will grow 7.3% in FY19 and 7.4% in FY20. It had in January forecast
FY20 growth at 7.5%. China is forecast to grow 6.6% and 6.2% in 2018 and 2019,
respectively. The Indian economy grew 6.7% in FY18.
“This acceleration reflects a rebound from
transitory shocks (the currency exchange initiative and implementation of the
national goods and services tax), with strengthening investment and robust private
consumption,” the IMF said. The forecast for investment growth in FY19 is
weaker than in April, despite higher capital spending.
India’s medium-term growth prospects remain
strong at 7.75%, benefiting from ongoing structural reform and a favourable demographic
dividend, the report said. The economic recovery is supported by domestic
demand-led pickup.
In its monetary policy review on Friday, the
RBI had retained its FY19 growth forecast at 7.4%.
The IMF expects the current account deficit
to worsen to 3% of GDP in the current fiscal year before improving to 2.5% in
FY20.
Inflation is projected at 4.7% in FY19
compared with 3.6% in FY18 amid accelerating demand and rising fuel prices.
Core
inflation, excluding all food and energy items, has risen to about 6% as a
result of a narrowing output gap and pass-through effects from higher energy
prices and exchange rate depreciation, the IMF said .
It has called for an increase in policy rates
by 25–50 basis points given the outlook on inflation. RBI kept the repo rate
unchanged at 6.5% in its monetary policy review last week. A basis point is
0.01percentage point.
In view of the rupee’s depreciation, the IMF
has said foreign exchange interventions should be limited to addressing
disorderly market conditions while protecting reserve buffers. The rupee has
weakened about 13% since the start of 2018.
It recognised important reforms such as GST,
the inflation-targeting monetary policy framework, the Insolvency and
Bankruptcy Code, and steps to liberalise foreign investment and make it easier
to do business. It called for a renewed impetus for reforming labour and land
markets, along with further improvements to the business climate.
GLOBAL SLOWDOWN At the global level, data
show weakening in trade, manufacturing, and investment, the IMF said. “Overall,
world economic growth is still solid compared with earlier this decade, but it
appears to have plateaued,” it said. Global growth is seen 0.2 percentage
points lower than the previous forecast in both the years to 3.7% each, same as
that in 2017.
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