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The International Monetary Fund (IMF) on Tuesday projected the Indian economy to grow 7.5 per cent in 2015-16, more than China, owing to a rise in disposable income and a pick-up in investment due to recent policy reforms.
However, it also projected the same growth for India in 2016-17 and said growth wouldn’t exceed 7.8 per cent till 2020-21. This seems a far cry from the expectation of Arvind Panagariya, vice-chairman of the National Institution for Transforming India (NITI) Aayog, who has said the economy could clock annual growth of 8-10 per cent through the next 15 years.
For 2016, economic growth in China is estimated at 6.8 per cent. It is estimated to fall to 6.3 per cent in 2017 and continue at that level till 2020.
The World Bank, meanwhile, said India’s economic growth could touch eight per cent in 2017-18 from 7.5 per cent in 2015-16, owing to an estimated investment growth of 12 per cent during FY16-FY18.
The IMF and the World Bank projections come ahead of the scheduled spring meetings of the two entities in Washington on April 17-19.
According to official advance estimates, the Indian economy is projected to have grown 7.4 per cent in 2014-15, the same pace seen by China in 2014. For 2015-16, the Economic Survey projects India to grow 8.1-8.5 per cent, higher than the IMF forecast.
For 2015 and 2016, global growth was pegged at 3.5 per cent (unchanged from an earlier projection) and 3.8 per cent (against a 3.7 per cent forecast in January), respectively.
The global economy grew 3.4 per cent in 2014.
IMF also projected retail inflation in India at 6.1 per cent in 2015-16 and 5.7 per cent in 2016-17. If this is actually the case, inflation would be in line with the Reserve Bank of India’s target of six per cent by January 2016.
The IMF said India’s current account deficit would narrow to 1.3 per cent of gross domestic product this financial year from 1.4 per cent in 2014-15. However, it might widen to 1.6 per cent in 2016-17.
The IMF attributed a pick-up in growth to low oil prices and a boost in investment, following recent policy reforms by the government. “Lower oil prices will raise real disposable incomes, particularly among poorer households, and help drive down inflation,” it said.
It added early evidence suggested in oil importing regions — from the US and the Euro zone to China and India — the increase in real income was leading to a rise in spending.
“Oil exporters have cut spending but to a smaller extent…many have substantial financial reserves and are in a position to reduce spending slowly,” Olivier Blanchard of the IMF said at a conference in Washington.
In its South Asia Economic Focus report, the World Bank said, “The country (India) is attempting to shift from consumption- to investment-led growth, at a time when China is undergoing the opposite transition.”
The IMF advised India to strive to remove infrastructure bottlenecks in the power sector and implement education, labour and product market reforms to raise competitiveness and productivity. “In India, the post-election recovery of confidence and lower oil prices offer an opportunity to pursue such structural reforms,” it said.
The World Bank report noted India had already taken encouraging steps to decouple international oil prices from fiscal deficits and introduce carbon taxation to address the adverse impact of the use of fossil fuels. The challenge, it said, would be to stay on course in the event of oil price increases, which were possible in the medium term.
On Monday, Panagariya had said he expected the economy to grow 8-10 per cent annually through the next 15 years. “If the economy actually grows 8-10 per cent in rupee terms, in dollar terms, it will be 11-12 per cent. That kind of growth will turn India into an $8-trillion economy from the current $2 trillion,” he had said.
