Washington : Driven by private consumption and increased industrial activity, India’s growth is projected to notch up to 7.5 per cent in 2016–17, overtaking China’s GDP by more than 1 per cent, the IMF stated on Tuesday.
Retaining its last October forecast, the International Monetary Fund in its latest World Economic Outlook report said, “With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth.”
“In India, growth is projected to notch up to 7.5 percent in 2016–17, as forecast in October. Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes,” it said. The World Economic Outlook report noted that in India, monetary conditions remain consistent with achieving the inflation target of 5 per cent in the first half of 2017, although an unfavourable monsoon and an expected public sector wage increase pose upside risks. In India, lower commodity prices, a range of supply side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nominal interest rate cuts, but upside risks to inflation could necessitate a tightening of monetary policy, it said. “Fiscal consolidation should continue, underpinned by revenue reforms and further reductions in subsidies. Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector,” IMF said. In 2015, India’s growth was 7.3 per cent, which would increase to 7.5 per cent in the next two years of 2016 and 2017, the IMF said. At the same time, the IMF report has projected a decline in China’s growth rate from 6.9 per cent in 2015 to 6.5 per cent in 2016 and 6.2 per cent in 2017. “China, now the world’s largest economy on a purchasing-power-parity basis, is navigating a momentous but complex transition toward more sustainable growth based on consumption and services,” it said.
“Ultimately, that process will benefit both China and the world. Given China’s important role in global trade, however, bumps along the way could have substantial spillover effects, especially on emerging market and developing economies,” the report said.
According to the report, the rebalancing process in China may be less smooth than assumed in the baseline scenario. “A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices, and confidence, and lead to a more generalised slowdown in the global economy, especially if it further curtailed expectations of future income,” it said.