India is likely to hold its position as one of the world’s fastest-growing economies as reforms start to pay off, the International Monetary Fund has pointed out.
The $2.6 trillion economy was described by Ranil Salgado, the IMF’s mission chief for India, as an elephant starting to run, with growth forecast at 7.3 per cent in the fiscal year through March 2019 and 7.5 per cent in the year after that, reported Bloomberg.
The nation accounts for about 15 per cent of global growth, according to the Washington-based fund, the report said.
Key risks flagged by the IMF in its annual Article IV assessment of the economy include higher oil prices, tightening global financial conditions and tax revenue shortfalls. Authorities should take advantage of stronger growth to bring down debt levels, simplify the consumption tax system and continue to gradually tighten monetary policy, it reportedly said.
Other key points from the IMF report:
Recovery is underway led by an investment pickup
External vulnerabilities remain contained but have risen
India’s export market share remains low; need to boost competitiveness
There’s need for maintaining exchange rate flexibility
FX intervention should be two-way and limited to disorderly market conditions
Government debt and budget deficit key macroeconomic challenges
Need labour, land and product market reforms for jobs growth
More needs to be done to ensure the health of state-run lenders
After a shock cash ban in late 2016 and a disruptive nationwide sales tax last year, India’s economy is once again gaining momentum. Growth reached the fastest pace in seven quarters in January through March, and high-frequency indicators from purchasing managers’ surveys to auto sales data show the economy is likely to grow above 7 per cent.
The government is due to release gross domestic product data on Aug. 31 for the three months ended June, the report said.
Continuing structural reforms would be key to high growth, Salgado reportedly said in a conference call. Further rationalization of the goods and services tax would give maximum benefits, and labour reforms would be an incentive for companies to expand, he added.
