With growth picking up after falling sharply in the second quarter of 2017 due to “one-off factors”, India in 2018 and 2019 would re-emerge as one of the fastest growing major economies, it said.
The International Monetary Fund (IMF) in the latest World Economic Outlook (WEO) has projected India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019.
China is expected to grow at 6.6 per cent and 6.4 per cent in the respective two years.
However, the latest IMF growth rate projection remains unchanged since the last one in October.
India’s growth rate in 2016 was 7.1 per cent as against China’s 6.7 per cent. Two major economic reforms – demonetisation and goods and services tax (GST) – resulted in a slight lower growth rate of 6.7 per cent in 2017.
China with 6.9 per cent growth jumped marginally ahead of India in 2017.
India’s projected growth provide some offset to China’s gradual slowdown, the IMF said.
The latest forecast is unchanged, “with the short-term firming of growth driven by a recovery from the transitory effects of the currency exchange initiative and implementation of the national goods and services tax, and supported by strong private consumption growth,” the WEO said.
According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance.
“While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness,” the report said.
India’s high public debt and recent failure to achieve the budget’s deficit target call for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility, the report said.
The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes, the IMF said.
According to the WEO, growth in China and India last year was supported by resurgent net exports and strong private consumption, respectively, while investment growth slowed.
Referring to the projected growth rate for India in 2018 and 2019, which is higher than that of the previous year of 2017, the IMF explained this is due to the strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax.
“Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” the WEO said.
“The growth rate in China is projected to soften down during this period,” it said, adding that over the medium term, its economy is projected to continue re-balancing away from investment toward private consumption and from industry to services, but nonfinancial debt is expected to continue rising as a share of GDP, and the accumulation of vulnerabilities clouds the medium-term outlook.