The International Monetary Fund (IMF) on Tuesday acknowledged structural reforms undertaken by the government in recent years and projected higher growth for this fiscal and the next.
India will again emerge as the world’s fastest-growing major economy at least for the next two years, the IMF said. India’s growth will rise steadily to 7.4 per cent for 2018-19 and 7.8 per cent for 2019-20, against 6.7 per cent in 2017-18, the multilateral body said. However, China’s expansion will slow to 6.6 per cent and 6.4 per cent for 2018 and 2019, respectively, against 6.9 per cent in 2017.
“Over the medium term, (India’s) growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” the IMF report said.
However, the report, released in the wake of the $2-billion fraud at Punjab National Bank, calls for a broader package of financial reforms, along with recapitalisation, to improve the governance of public sector banks and strengthen banks’ debt recovery mechanisms. The multilateral body cited India’s “high public debt and a recent failure to achieve the budget’s deficit target” to call for continued fiscal consolidation into the medium term to “further strengthen fiscal policy credibility”.
The government has pegged FY18 fiscal deficit at 3.5 per cent (revised estimate), although the final estimate would most likely be 3.4 per cent — still higher than the target of 3.2 per cent. For FY19, the target is fixed at 3.3 per cent instead of 3 per cent aimed for earlier. Finance minister Arun Jaitley has said that most of the fiscal deficit slippage of 30 bps from the target for FY18 would have been bridged had the government factored in a full-year goods and services tax collection, instead of that of 11 months following the introduction of a new accounting system.
Meanwhile, IMF retained its global growth prediction but surprisingly raised its forecasts of global trade by a decent 50 basis points (bps) for 2018 and 30 bps for the next year from the levels it expected in January, despite a looming trade war between the US and China. Although the IMF flagged risks from “inward-looking policies” of some countries to trade prospects, the higher forecasts on the basis of a rebound in investments suggest it still believes the trade war may not spiral out of control, plunging the world into a broader crisis. FE