 "India to grow faster than China by 2016-17: IMF")
In its World Economic Outlook Update, the IMF said it thought the country’s growth rate would be 6.5 per cent for 2016-17. Lauding policy reforms by the Narendra Modi government, its officials said, however, that the key was implementing these.
On a different growth parameter, it projected India's economy to grow faster than China's by 2016-17. This methodology includes indirect taxes in gross domestic product, termed GDP at market prices. On this method, India would grow at 6.5 per cent in 2016-17 and China by 6.3 per cent in the calendar year of 2016. Meaning, India would be fastest growing large economy in the world by then.
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However, the time periods are not strictly comparable, as China's growth is for a calendar year and India’s for a financial year (April-March). “I think the reform plans of the new prime minister are promising. We are going to have to see the speed of the implementation,” said Gian Maria Milesi-Ferretti, deputy director in IMF’s research department.
To a question, he said the effect of the Modi government's economic reforms would be difficult to predict, as these were structural ones and would grow gradually over the medium term. “The key is going to be implementation,” he reiterated.
One should note India’s economic size is a fifth of China’s. Their economy was $10.4 trillion in size in 2014; India’s was projected to be almost $2 trillion in 2014-15.
Our economy grew five per cent (GDP at market prices) in 2013-14 against China’s 7.8 per cent during calendar year 2013. This growth gap is projected to get narrower, as India’s economy is expected to expand 5.8 per cent in the current financial year, compared to 7.4 per cent for China in 2014. For the next financial year, India is forecast to expand 6.3 per cent, against China’s 6.8 per cent for 2015.
China’s 2015 growth was projected to grow by 0.3 percentage points, less than what was pegged in October by the IMF. The growth for 2016 was expected to slow by 0.5 percentage points. India’s estimated growth was cut by 0.1 percentage point for 2015-16 and retained for 2016-17. The IMF attributed this to a decline in investment growth in China in the third quarter of 2014. “... leading indicators point to a further slowdown,” it said. The Chinese authorities are expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and, hence, the forecast assumes less of a policy response to the underlying moderation.
However, IMF said, the growth forecast was broadly unchanged for India. It said weaker external demand would be offset by lower oil prices and a pick-up in industrial and investment activity after policy reforms.
The World Bank (WB) had estimated India would grow at seven per cent by 2017-18 and China by 6.9 per cent in 2017 but the two rates were not comparable. China's was computed on GDP at market prices and India's at GDP at factor cost (which excludes indirect taxes). Officially, too, India estimates its economic growth in terms of the latter. Under this methodology, both IMF and the WB forecast India's economy to grow by 5.6 per cent this financial year. For the next one, the Bank's forecast is 6.4 per cent and that of IMF is 6.3 per cent. For 2016-17, IMF predicts India's growth at 6.5 per cent, about 0.5 percentage points lower than the WB.
World outlook
The IMF predicted world economic growth at 3.5 per cent in 2015 and 3.7 per cent the next year. Each is lower by 0.3 percentage points than its October forecast.
The US was projected to grow 3.6 per cent in 2015 and 3.3 per cent the next year, higher by 0.5 percentage points and 0.3 percentage points compared to the October projections. The US economy was forecast to grow 2.4 per cent in the just-concluded year.
The US is the single largest importer-countryf India's goods. The euro zone, largest destination of our merchandise export, was projected to expand 1.2 per cent in 2015 and 1.4 per cent next year, 0.2 percentage points and 0.3 percentage points slower than predicted by the Fund in October.
The euro zone economy contracted 0.5 per cent in 2013 and was projected to recover to 0.8 per cent growth in 2014.
The IMF said lower oil prices due to supply shifts boost global growth, although with important differences between oil importers and exporters.
"The global economic impact depends crucially on how large and persistent the oil supply shifts are expected to be. The more persistent they are, the more consumers and firms will adjust consumption and production," it said.