India’s growth rate is predicted to increase to 7.3 per cent in 2018 and 7.4 per cent in 2019, as per the latest World Economic Outlook report released by the International Monetary Fund (IMF) on October 9, 2018. In 2017, India had recorded a growth rate of 6.7 per cent.

The latest growth prediction for India, however, is slightly lower than what was predicted in April 2018 World Economic Outlook for 2019 due to the recent increase in oil prices and tightening of global financial conditions.

Key Highlights of the Report

• According to the report, the 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 report states that India’s medium-term growth prospects remain strong at 7.75 per cent, benefiting from ongoing structural reform, but have been marked down by just under 0.5 percentage point relative to the April 2018 WEO.

• In fact, the IMF has lowered the growth projections for both India and China by 0.4 per cent and 0.32 per cent, respectively, from its annual April’s World Economic Outlook.

• China’s growth rate is projected to moderate from 6.9 per cent in 2017 to 6.6 per cent in 2018 and 6.2 per cent in 2019, reflecting a slowing external demand growth and necessary financial regulatory tightening. The nation’s slow growth projection for 2019 is also a result of the latest round of US tariffs on Chinese imports.

• The report stated that the 0.2 percentage point downgrade to the 2019 growth forecast is attributable to the negative effect of recent tariff actions, assumed to be partially offset by policy stimulus.

• It further noted that over the medium term, growth is expected to gradually slow to 5.6 per cent as the economy continues to make the transition to a more sustainable growth path with continued financial de-risking and environmental controls.

• The projected growth rate of United States for 2018 is 2.9 per cent and that of 2019 is 2.5 per cent.

• In India, the report said that important reforms have been implemented in the recent years, including the Goods and Services Tax, the inflation-targeting framework, the Insolvency and Bankruptcy Code, and steps to liberalise foreign investment and make it easier to do business.

• It further said that in India, a high-interest burden and risks from rising yields require continued focus on debt reduction to establish policy credibility and build buffers. It stated that these efforts should be supported by further reductions in subsidies and enhanced compliance with the Goods and Services Tax.

• It also said inflation in India is on the rise, estimated at 3.6 per cent in fiscal year 2017/18 and projected at 4.7 per cent in fiscal year 2018/19, compared with 4.5 per cent in fiscal year 2016/17, amid accelerating demand and rising fuel prices.

• The report said that aggregate growth in the emerging market and developing economy group stabilised in the first half of 2018.

Significance

If the projections are true, then India will regain the tag of the fastest growing major economies of the world, crossing China with more than 0.7 percentage point in 2018 and an impressive 1.2 percentage point growth lead in 2019.

China was the fastest growing economy in 2017 as it was ahead of India by 0.2 percentage points.

Overall, Asia continued to register strong growth as per the report, supported by a domestic demand-led pickup in the Indian economy from a four-year-low pace of expansion in 2017.

The IMF’s flagship World Economic Outlook was released in Bali during the annual meeting of the IMF and the World Bank.

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