Perhaps for the first time, the International Monetary Fund has projected India to overtake China in terms of the annual economic growth rate during 2016, clearly taking note of the Narendra Modi Government’s planned push on the reforms front. In an update of its World Economic Outlook projections, the IMF said on Tuesday that India is expected to grow at 6.3 per cent this year and 6.5 per cent next year – up from 5.8 per cent in 2014.
In contrast, China is projected to grow at 6.8 per cent this year, but drop to 6.3 per cent next year. China has been experiencing a steady slowdown of growth over the last couple of years, dropping from 7.8 per cent in 2013 and 7.4 per cent in 2014. Although global growth is reckoned to receive a boost from the sharp decline in oil prices in recent months, the IMF has cut its world economic projection by 0.3 per cent to 3.5 per cent this year, noting the gains on the oil front are expected to be more than offset by negative factors such as investment weakness.
Interestingly, IMF sees India’s growth momentum intact, lowering its projection for this year by just 0.1 per cent this year and making no downward revision for next year. Explaining its relatively healthy projection for India, the IMF report says the country’s “weaker external demand is offset by the boost to the terms of trade from lower oil prices and a pickup in industrial and investment activity after policy reforms”.
The IMF, however, has stressed that implementation will be the key to India’s reforms agenda. “I think the reform plans of the new Prime Minister are promising. We are going to have to see the speed of the implementation,” commented Gian Maria Milesi-Ferretti, Deputy Director in IMF's Research Department.
On the global front, the IMF has cut projections for several big players, barring the United States which, in marked contrast, is expected to see a major upsurge of economic activity. The report has raised its projection for the US to 3.5 per cent this year, up by 0.5 per cent from its October forecast. “The world economy is facing strong and complex cross currents,” said IMF’s chief economist Olivier Blanchard. “On the one hand, major economies are benefiting from the decline in the price of oil. On the other, in many parts of the world, lower long run prospects adversely affect demand, resulting in a strong undertow.”
“Our forecast for global growth in 2015 is 3.5 per cent -- 0.3 per cent higher than global growth in 2014, but 0.3 per cent less than our forecast in October,” Blanchard said.