Washington: Indian economy is expected to grow faster than other major emerging economies, the IMF said today, projecting a growth rate of 7.5 per cent for India in 2016 as against China’s 6.3 per cent.
“Growth in India is expected to rise above the rates in other major emerging market economies,” the IMF said in its latest World Economic Outlook Update released here.
“India’s growth is expected to strengthen from 7.3 per cent this year and last year to 7.5 per cent next year. Growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices,” it said.
On the other hand, growth in China is expected to decline to 6.8 per cent this year and 6.3 per cent in 2016.
Previous excesses in real estate, credit, and investment continue to unwind, with a further moderation in the growth rates of investment, especially that in residential real estate, it said.
The forecast assumes that policy action will be consistent with reducing vulnerabilities from recent rapid credit and investment growth and hence not aim at fully offsetting the underlying moderation in activity, it said.
Global growth for 2015 is projected at 3.1 per cent, 0.3 per centage point lower than in 2014, and 0.2 per centage point below the forecasts in the July 2015 World Economic Outlook (WEO) Update.
In advanced economies, growth is expected to remain robust and above trend through 2016 and contribute to narrowing the output gap.
The growth recovery in the euro area is projected to be broad based. In Latin America and the Caribbean, activity is expected to rebound in 2016 after a recession in 2015, it said.
According to the report, in India, inflation is expected to decline further in 2015, reflecting the fall in global oil and agricultural commodity prices.
Near-term growth prospects in India remain favourable, and the decrease in the current account deficit has lowered external vulnerabilities.
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 said.
Continued fiscal consolidation is also essential, but it should be more growth friendly (tax reform, reduction in subsidies), it noted.
“With balance sheet strains in the corporate and banking sectors, financial sector regulation should be enhanced, provisioning increased, and debt recovery strengthened,” it added.
Structural reforms should focus on relaxing long-standing supply constraints in the energy, mining, and power sectors.
Priorities 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, IMF said.
In addition, geopolitical tensions and domestic strife in a number of countries remain high, with immense economic and social costs.
External conditions are becoming more difficult for most emerging economies.
The prospect of rising US interest rates and a stronger dollar has already contributed to higher financing costs for some borrowers, including emerging and developing economies, WEO said.
And while the growth slowdown in China is so far in line with forecasts, its cross-border repercussions appear larger than previously envisaged, including through weaker commodity prices and reduced imports, the report said.
Obstfeld said emerging market and developing economies need to be ready for monetary policy normalisation by the US.
Advanced economies must continue to deal with crisis legacies where they persist.
“At the same time, monetary accommodation should continue where output gaps are negative, supplemented by fiscal measures where fiscal space permits. In particular, the case for infrastructure investment seems compelling at a time of very low long-term real interest rates,” he added.
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