In a relatively bleaker forecast for the world economy as a whole, the International Monetary Fund has marginally trimmed its growth projections for India and several major economies. It now expects India to grow at 7.3 per cent this year - 0.2 per cent lower than its projection in July - and 7.5 per cent next year.
The IMF’s World Economic Outlook, released on Tuesday, scales down global growth to 3.1 per cent -- a drop of 0.3 per cent from last year’s level.
It expects China to grow at 6.8 per cent this year (down from last year’s 7.3 per cent) and 6.3 per cent next year. The US is projected to grow at 2.0 per cent this year and 2.2 per cent next year.
The overall downgrade highlights the fact that the world economy will this year be growing at its slowest pace since the global financial crisis of 2007-08, highlighted by China’s sharp deceleration with slowdown in other emerging economies as well.
“Six years after the world economy emerged from its broadest and deepest postwar recession, a return to robust and synchronized global expansion remains elusive,” the IMF says, noting that the revised forecasts underscore the challenges all countries face.
“Despite considerable differences in country-specific outlooks, the new forecasts mark down expected near-term growth rates marginally, but nearly across the board,” writes IMF’s Chief Economist Maurice Obstfeld, stressing that downside risks to the world economy appear more pronounced than they did just a few months ago.
For India, the IMF’s projection contrasts with a more upbeat assessment made by the World Bank just 24 hours earlier. lauding India’s resilience, the Bank had come up with a forecast of 7.5 per cent for this year and 7.8 per cent next year.
Prospects across the main countries and regions remain uneven, the IMF report says. It speaks of a slight recovery in advanced economies, while activity in emerging market and developing economies is projected to slow for the fifth year in a row.
“In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies,” the report says.
Despite the slight trimming of its projection for India, the IMF says the country’s near-term growth prospects remain favourable, with the decrease in the current account deficit lowering its external vulnerabilities. It expects India to benefit from recent policy reforms, a consequent pick-up in investment and lower commodity prices.
“The faster-than expected decline in inflation has created space for considering modest cuts in the nominal policy rate, but the real policy rate needs to remain tight for inflation to decline to the inflation target in the medium term, given upside risks to inflation,” it says, highlighting the need for continued fiscal consolidation and a more growth-friendly regime including tax reform and reduction in subsidies.
With balance sheet strains in the corporate and banking sectors, it calls for enhancing financial sector regulation, with provisioning increased and debt recovery strengthened.
“Structural reforms should focus on relaxing long-standing supply constraints in the energy, mining, and power sectors,” the IMF says, noting that priorities should include market-based pricing of natural resources to boost investment, addressing delays in the implementation of infrastructure projects and improving policy frameworks in the power and mining sectors.