The International Monetary Fund (IMF) has moderately scaled down India's economic growth projection to 7.3 per cent for the current financial year from its earlier forecast of 7.4 per cent, while suggesting that the country should continue to undertake economic reforms, including a hire and fire policy to generate jobs. The new growth projection is a bit more optimistic than the Reserve Bank of India's (RBI), but moderately pessimistic than that of the World Bank.
In its World Economic Outlook (WEO), a flagship publication brought out during the annual spring meetings of IMF and World Bank in Washington, the Fund also revised down its prediction for the country's economic growth to 7.5 per cent from an earlier 7.7 per cent for the next financial year.
For 2018-19, the multi-lateral institution pegged the economic growth at 7.1 per cent -- a shade higher than the official projection of 7 per cent in the second advance estimates. In either case, the growth for that year would be the lowest during the five-year tenure of the Modi government.
However, even then the country will remain the fastest growing large economy as the growth of its nearest competitor, China, is pegged at 6.6 per cent, 6.3 per cent and 6.1 per cent for 2018, 2019 and 2020 respectively. China's growth for 2019 and 2020 was cut by 0.1 percentage point each.
The downward projections for India are more to do with the revision of growth numbers by the Ministry of Statistics and Programme Implementation (MoSPI) than an economic slowdown.
"In India, growth is projected to pick up to 7.3 per cent in 2019 and 7.5 per cent in 2020, supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy," IMF said in WEO, titled "Growth Slowdown, Precarious Recovery."
It added,"Nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO by 0.1 percentage point for 2019 (2018-19) and 0.2 percentage point for 2020 (2020-21), respectively."
MoSPI had revised the country's economic growth projections on January 31 this year, scaling up growth projections for some years such as demonetisation year of 2016-17 and 2017-18. Due to revisions, economic growth for 2018-19 was also projected to slow down to 7 per cent in 2018-19 in the second advance estimates.
The hopes of India to grow by eight per cent in any near future could be dashed if IMF's projections come true. IMF said growth in India is expected to stabilise at just under 7.75 per cent over the medium term, based on continued implementation of structural reforms and easing of infrastructure bottlenecks.
The Fund said continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economy’s growth prospects.
In the near term, continued fiscal consolidation is needed to bring down India’s elevated public debt. "This should be supported by strengthening goods and services tax compliance and further reducing subsidies. Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of nonperforming assets under a simplified bankruptcy framework," it said.
These efforts should be reinforced by enhancing governance of public sector banks.
Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the country’s large demographic dividend; efforts should also be enhanced on land reform to facilitate and expedite infrastructure development, it added.
India's growth rates were revised downward at a time when IMF scaled down the global economic growth to 3.3 per cent in 2019, down from 3.7 per cent, forecast earlier. Similarly, the growth rate for 2020 was revised down to 3.6 per cent from earlier 3.7 per cent. End