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IMF cuts India's growth projections slightly

The government expected economic growth in the range of 7-7.75 per cent for the current financial year

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington
The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington
Indivjal Dhasmana New Delhi
Last Updated : Jul 20 2016 | 1:31 AM IST
The International Monetary Fund (IMF) has marginally scaled down India's economic growth projections by 0.1 percentage point to 7.4 per cent each for the current financial year and 2017-18, due to a slower investment revival than expected earlier.

"In India, economic activity remains buoyant, but the growth forecast for 2016-17 was trimmed slightly, reflecting a more sluggish investment recovery," IMF said in its update on World Economic Outlook released on Tuesday.

The economic growth of 7.4 per cent and also its earlier projection of 7.5 per cent for the two financial years would be lower than 7.6 per cent registered for 2015-16. The government expected economic growth in the range of 7-7.75 per cent for the current financial year. On Monday, Asian Development Bank had retained its projections for India at 7.4 per cent for 2016-17. However, it had pegged the economic growth much higher at 7.8 per cent for 2017-18 than what has IMF projected in its latest report. On the other hand, Morgan Stanley had revised its growth estimate from 7.5 per cent to 7.7 per cent for 2016.

It also scaled up growth rate to 7.8 per cent, from earlier 7.7 per cent for 2017. The sluggish pace of investments in the country could be gauged from the fact that capital goods declined for the seventh consecutive month in May and that, too, by 12.4 per cent.

The gross fixed capital formation (GFCF), a proxy for investment, contracted 1.9 per cent in the fourth quarter of 2015-16. It had risen as high as 7.1 per cent and 9.7 per cent in the first and second quarters, respectively. However, third quarter also saw a small increase of 1.2 per cent. While revising its growth projections for India, Morgan Stanley also said the growth recovery is becoming more broad-based, driven by public capex, foreign direct investment (FDI) and consumption. This indicated that private investments are yet to pick up.

On the other hand, IMF slightly revised China's growth by 0.1 percentage points for 2016 and retained it for 2017.

Even then, latest projections for China at 6.6 per cent for 2016 would be quite lower than India's. Also, China's growth rate will come down to 6.1 per cent for 2017, while India's will remain intact at 7.4 per cent for 2017-18, according to IMF.

The IMF report said indicators of real activity were somewhat stronger than expected in China, reflecting policy stimulus. Benchmark lending rates were cut five times in 2015, fiscal policy turned expansionary in the second half of the year, infrastructure spending picked up, and credit growth accelerated in China, IMF said.

IMF latest update is titled, Uncertainty in the Aftermath of the UK Referendum. It said the vote in the United Kingdom in favour of leaving the European Union (EU) added significant uncertainty to an already fragile global recovery.

"The vote has caused significant political change in the United Kingdom, generated uncertainty about the nature of its future economic relations with the EU, and could heighten political risks in the EU itself," it said.

It admitted that the impact and persistence of the uncertainty are hard to quantify at this stage. The financial market reaction so far has been generally orderly and contained. However, global confidence effects and tighter financial conditions-amid the prolonged negotiations that are likely to precede a new relationship between the UK and EU-could affect global growth negatively beyond what is envisaged in the baseline scenario, IMF said.

IMF cut global economic growth by 0.1 percentage points each for 2016 and 2017 to 3.1 per cent and 3.4 per cent, respectively.

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First Published: Jul 20 2016 | 12:38 AM IST

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