NEW DELHI: India’s growth could recover to 5.4 per cent in the current fiscal year and increase by one percentage pointto 6.4 per cent in the next year to March 2016 due to stronger global growth, an improvement in export competitiveness and implementation of the recently-approved investment projects, according to the International Monetary Fund (IMF).
A reiteration of January forecast is an indication that IMF’s view of the Indian economy has not changed in the last three months, even as global investors have bought Indian shares in the hope of the economy doing better.
In the just-ended fiscal year, IMF expects the economy to expand 4.4 per cent, according to its World Economic Outlook, which urged more economic reforms.
“Priorities include market-based pricing of natural resources to boost investment, addressing delays in the implementation of infrastructure projects, improving policy frameworks in the power and mining sectors, reforming the extensive network of subsidies, and securing passage of the new goods and services tax to underpin medium-term fiscal consolidation,” according to the report.
IMF measures GDP in terms of market prices while India gives more weight to the factor-cost method. In terms of factor cost, IMF expects the Indian economy to expand 4.6 per cent in 2013-14, close to the country’s official estimate of 4.9 per cent.
IMF’s estimates for 2014-15 and 2015-16 are same under both the methods – 5.4 per cent and 6.4 per cent, respectively. The multilateral lender sees the global economy growing 3.6 per cent in 2014, 0.1 percentage point lower than its January estimate, and 3.9 per cent in 2015, again 0.1 percentage point from the earlier estimate.
The weakness is largely due to slower growth in emerging markets and Japan. For India, IMF sees the management of consumer inflation as the biggest challenge, but expects it to decline further. However, it feels the interest rates may have to be raised further to manage inflation.
The Reserve Bank of India left interest rates unchanged in its April 1 monetary policy review after consumer inflation dropped to a 25-month low of 8.1 per cent in February. The report blamed domestic factors for slowing growth, reinforcing the general perception of poor economic management by the Manmohan Singh government.
Economic growth is likely to be below 5 per cent for two successive years. “External factors have generally been much less important compared with internal factors for some relatively large or closed economies, such as China, India, and Indonesia,” according to the IMF.
“A similar picture emerges for India, wherein internal factors reduced growth from 2011 until the third quarter of 2012, but there is an increase in their contribution since late 2012,” according to the report, which compared the slowdown in emerging economies.
For countries such as Argentina, Brazil, Colombia, India, Indonesia, Thailand and Venezuela, the growth correlation with China was stronger than that with the euro area or the United States. China is projected to slow further to 7.5 per cent in 2014 and 7.3 per cent in 2015 from 7.7 per cent in 2013.