By Arul Louis
United Nations/New Delhi– The International Monetary Fund (IMF) says that India will retain its top spot as the world’s fastest growing economy, helped by structural reforms and the fading of the effects of demonetisation and the new GST system.
According to the World Economic Outlook (WEO) report released on Tuesday, India’s economy is expected to grow at 7.4 per cent in 2018 from 6.7 per cent in 2017.
As per the report, the country’s economic growth is expected to be 7.8 per cent in 2019.
The report predicted that the current year’s economic growth will be pushed higher by “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,” the report read.
The WEO report pointed out that India has made progress on structural reforms in the recent past, “including through the implementation of the goods and services tax, 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 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.”
In terms of risks for India’s economy, the report cautioned against India’s high public debt levels and its “recent failure to achieve the budget’s deficit target call for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility”.
The report added that corporate debt overhang and associated banking sector credit quality concerns “exert a drag on investment in India”.
Last year’s “recapitalisation” plan for major public sector banks will “improve the banking sector’s ability to support growth,” the report said.
But it added that the “recapitalisation should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks’ debt recovery mechanisms should be further enhanced”.
On the international front, the report kept the global growth rate projections at 3.9 per cent for this year and the next that was made in January.
“A projected increase in India’s growth provide some offset to China’s gradual slowdown and emerging Europe’s return to its lower-trend growth rate,” the report said.
China’s growth rate is projected to be be 6.6 percent this year and slide to 6.4 percent next year.
Meanwhile, IMF Research Director Maurice Obstfeld cautioned that a trade war could put global growth at risk.
He told reporters in Washington that a fight over trade will not help anyone and there will be no winners, even if some may see some short-term benefits.
The US sparked off a trade war, primarily aimed at China, by raising some tariffs and Beijing retaliated with its own set of counter tariffs. (IANS)