India’s growth is expected to rebound to 7.2 per cent in the 2017–18 fiscal and 7.7 per cent in 2018-19 after ‘disruptions’ caused by demonetisation, the IMF said on Tuesday, while recommending removal of long-standing ‘structural bottlenecks’ to enhance market efficiency. The temporary disruptions (primarily to private consumption) caused by cash shortages accompanying the currency exchange initiative are expected to gradually dissipate in 2017 as cash shortages ease, the IMF said in its regional economic outlook. Such disruptions would also be offset by tailwinds from a favourable monsoon season and continued progress in resolving supply-side bottlenecks, the IMF said.
The investment recovery is expected to remain modest and uneven across sectors as deleveraging takes place and industrial capacity utilisation picks up, it noted. “In India, growth is projected to rebound to 7.2 per cent in FY2017–18 and further to 7.7 per cent in FY2018–19,” the IMF said. “Headwinds from weaknesses in India’s bank and corporate balance sheets will also weigh on near-term credit growth. Confidence and policy credibility gains, including from continued fiscal consolidation and anti-inflationary monetary policy, continue to underpin macroeconomic stability,” the IMF said. The IMF maintains a positive outlook on the Indian economic growth and is confident that the GST implementation will be smooth. “India is one of the countries that have excellently performing reforms and that is one of the major reasons for the country to maintain one of the highest economic growth rates (in the world),” said Changyong Rhee, director for Asia and Pacific Department at IMF at a press conference in Singapore.