In line with India’s new norms of measuring economic output and taking into account the improving business climate, the International Monetary Fund has substantially raised the country’s growth projections to 7.2 per cent in 2014-15 and 7.5 per cent in 2015-16. The modified growth projection announced by the IMF on Wednesday represents a big jump from its outlook last October, when it had forecast a mere 5.6 per cent for 2014-15 and 6.3 per cent for 2015-16.
In its annual assessment of the Indian economy, the IMF says the revival has been helped both by positive policy actions that have improved confidence and the plummeting global oil prices. The IMF went on to describe the Indian economy as “the bright spot in the global landscape, becoming one of the fastest growing big emerging market economies in the world”.
It, however, stopped short of India’s own estimations outlined in the recent Economic Survey, pegging growth in the 8.1-8.5 per cent range for 2015-16. “The revised growth figures support our view that economic recovery in India is under way, albeit pointing to a somewhat faster pace than we, and others, previously believed,” IMF’s Mission Chief for India Paul Cashin said, adding: “These GDP revisions portray a more resilient performance of the services and manufacturing sectors of the economy.”
The IMF, which expects the growth upsurge to be driven by stronger investment following improvements to the business climate, has at the same time highlighted the need for India to “revitalize the investment cycle and accelerate structural reforms” in order to consolidate the gains. At the same time, Cashin cautioned India against both external and domestic risks, noting that “spillovers from weak global growth and global financial market volatility could be disruptive, including from any unexpected developments as the United States begins to raise its interest rates”.
On the domestic front, India would have to watch issues such as weaknesses in corporate balance sheets and worsening bank asset quality.While acknowledging that new investment project announcements have started to pick up, particularly in the power and transport sectors, Cashin said bolstering the financial sector and financial inclusion would support growth going forward.
The IMF has highlighted once again the need for “deeper structural reforms” to ensure that India is able to generate sufficient jobs for its vastly multiplying workforce, with some 100 million young Indians entering the job market in the coming decade. Commenting on the Narendra Modi Government’s “Make in India” campaign and other efforts to improve the business climate, the IMF said while these initiatives gain momentum, it is vital for India to implement reforms in several thrust areas.
The calls for action include addressing bottlenecks in the energy, mining and power sectors; increasing investment to help close India’s major infrastructure gaps; taking further steps to simplify and expedite the process of acquiring land and obtaining environmental clearances; reforming the agriculture sector to ensure greater efficiencies in the public system for food procurement, distribution, and storage; making labour markets more flexible; and improving education to meet rising shortages of skilled labour.
“Moving the economy forward in these directions will help India continue along the path toward a brighter economic picture of rapid economic growth and macroeconomic stability for many years to come,” Cashin said. On the inflation front, which has come down to around 5 per cent after hovering around 10 per cent for several years, the IMF has commended the Reserve Bank of India’s tightening of the monetary policy and the Government’s efforts to contain food inflation by releasing buffer stocks of cereal and keeping procurement prices in check.