IMF forecasts 7.5% growth for India in 2019-20

The International Monetary Fund (IMF) has projected a 7.5 percent growth for India in fiscal 2019-2020 on strengthening investment and robust private consumption.

The IMF in a report published Tuesday, equally said the near-term macroeconomic outlook for India is “broadly favourable.”

The report specifically noted that growth is forecast to rise to 7.3 percent in fiscal 2018/19 and 7.5 percent in 2019/20. This is in contrast with 6.7 percent recorded in the prior year.

Headline inflation is projected to rise to 5.2 percent in fiscal year 2018/19, as demand conditions tighten, along with the recent depreciation of the rupee and higher oil prices, housing rent allowances and agricultural minimum support prices, it said.

The current account deficit is projected to widen further to 2.6 percent of the GDP on rising oil prices and strong demand for imports, offset by a slight increase in remittances, the report said.

It said that financial sector reforms have been undertaken to address the twin balance sheet problems, as well as to revive bank credit and enhance the efficiency of credit provision by accelerating the cleanup of bank and corporate balance sheets.

“Stability-oriented macro-economic policies and progress on structural reforms continue to bear fruit” in the country, the report said.

It said following disruptions related to the November 2016 currency exchange initiative and the July 2017 Goods and Services Tax (GST) rollout, growth slowed to 6.7 per cent in fiscal year 2017/18, but a recovery is underway led by an investment pickup.

Headline inflation averaged 3.6 percent in fiscal year 2017/18, a 17-year low, reflecting low food prices on a return to normal monsoon rainfall, agriculture sector reforms, subdued domestic demand and currency appreciation.

The report recommended that continued fiscal consolidation is needed to lower elevated public debt levels, supported by simplifying and streamlining the GST structure.

Ranil Salgado, the head of the IMF team for India, said India’s economy is gaining momentum, thanks to the implementation of several recent noteworthy policies, such as the enactment of the long awaited goods and services tax, and the country opening up more to foreign investors.

To sustain and build on these policies and to harness the demographic dividend associated with a growing working-age population (which constitutes about two-thirds of the total population), Salgado said, “India needs to reinvigorate reform efforts to keep the growth and jobs engine running.

This is critical in a country where per capita income is about $2,000, still well below that of other large emerging economies.”

But to sustain rapid growth and raise incomes for the country’s 1.3 billion people, the IMF recommended that India would need to build on the success of its reforms.