IMF cuts India's growth forecast, but expects a medium-term recovery
The International Monetary Fund (IMF) in its World Economic Outlook (WEO) report trimmed Indian economy's growth forecast to 6.7% from earlier 7.1% citing the disruptions caused by government's decisions of demonetization and introduction of good and services tax (GST). However, these structural reforms will ensure a recovery in the medium-term to above 8%. How are international agencies pegging India's growth? Know more!
High government spending and government-modified method of GDP calculation had made IMF revise India's growth to 7.1% for 2016. However, in November'16, Indian undertook demonetization of Rs. 500 and Rs. 1,000 notes and in July'17, government launched the indirect tax GST, leading to economic slowdown.
Recently, RBI lowered its growth projection to 6.7% compared with 7.3% estimated earlier. World Bank's South Asia Economic Focus (Fall 2017) report cut growth to 7% compared with 7.2% estimated earlier. The Asian Development Bank (7%), the Organization for Economic Cooperation and Development (OECD) (6.7%), Fitch Ratings (6.9%) and Indian Ratings and Research (6.7%) also snipped their respective growth percentages.
Asserting that the global economy was recovering since 2016, the IMF pegged its growth estimate for 2017 at 3.6%. IMF made upward revisions to growth forecasts of Euro countries, Japan, China and Russia. However, this was counterbalanced by low growth for the US, UK and India. It also placed China's growth rate, higher than India's, at 6.8%, but expected India to catch-up by 2018.
IMF expected the growth trajectory to improve to 8% in the medium term due to structural reforms like GST. However, it advised India to focus on simplifying labor market regulations and land acquisition procedures to improve business and investment. Further, it asserted the need for bridging the gender gap in accessing social services, finance and education to obtain a wider workforce for improving growth.
DK Srivastava, chief policy advisor, EY India told DNA that the mid-term recovery predicted by IMF depends on government's ability to increase spending and quicken GST reforms. Bloomberg Quint reports that despite forecast, India will continue as a popular investment destination. Much will depend on the demand revival expected in the October-December quarter. It remains to be seen whether IMF's turnaround predictions hold true.