India to re-emerge as one of fastest growing economies in 2018-19, says IMF

India is expected to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019, leaving its nearest rival China behind respectively at 6.6 and 6.4 per cent in the two years, the IMF said on Tuesday. With growth picking up after falling sharply in the second quarter of 2017 due to "one-off factors", India in 2018 and 2019 would re-emerge as one of the fastest growing major economies, it said.

The International Monetary Fund (IMF) in the latest World Economic Outlook (WEO) has projected India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019. China is expected to grow respectively at 6.6 and 6.4 per cent in the two years. However, the latest IMF growth rate projection remains unchanged since the last one in October. India's growth rate in 2016 was 7.1 per cent as against China's 6.7 per cent. Two major economic reforms demonetisation and goods and services tax (GST) resulted in a slight lower growth rate of 6.7 per cent in 2017.

China with 6.9 per cent growth jumped marginally ahead of India in 2017. India's projected growth provides some offset to China's gradual slowdown, the IMF said. The latest forecast is unchanged, "with the short-term firming of growth driven by a recovery from the transitory effects of the currency exchange initiative and implementation of the Goods and Services Tax, and supported by strong private consumption growth," the WEO said.

According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, 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. India's high public debt and 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 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, the IMF said.

According to the WEO, growth in China and India last year was supported by resurgent net exports and strong private consumption, respectively, while investment growth slowed. Referring to the projected growth rate for India in 2018 and 2019, which is higher than that of the previous year of 2017, the IMF explained this is due to the strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the GST.

"Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment," the WEO said.

"The growth rate in China is projected to soften down during this period," it said, adding that over the medium term, its economy is projected to continue re-balancing away from investment toward private consumption and from industry to services, but nonfinancial debt is expected to continue rising as a share of GDP, and the accumulation of vulnerabilities clouds the medium-term outlook.

Corporate debt overhang exerts drag on investment in India, says IMF

The corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India, the IMF on Tuesday said in an apparent reference to the PNB scam involving billionaire diamantaire Nirav Modi. Balance sheet vulnerabilities pose a downside risk to medium-term growth prospects in many emerging market economies, requiring policy action, the International Monetary Fund (IMF) said in its latest annual World Economic Outlook report.

"The corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India," it said. The global financial lender was apparently referring to the massive Rs 13,700-crore fraud at the Punjab National Bank in which Modi is the main accused. According to the report, the recapitalisation plan for major public-sector banks announced in 2017 will help replenish capital buffers and improve the banking sector's ability to support growth. "However, 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," the IMF said.