Growth is expected to pick up after reform measures like GST bear fruit.
The IMF, in its World Economic Outlook report, has cut India’s FY18 growth forecast to 6.7%, on account of the twin impacts of demonetisation and GST. But IMF expects a revival in the economy when these reform measures bear fruit, which will help India recover the title of “fastest-growing economy” from China. The report pegs FY19 growth at 7.4%, against the earlier estimate of 7.7%. This comes as global growth is set to pick up pace and China expands faster at 6.8%, marginally ahead of India.
“In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative, as well as uncertainty related to the midyear introduction of the country-wide goods and services tax,” IMF said in the report.
The IMF expects consumer inflation at 3.8% in FY18, rising to 4.9% in FY19. It also expects the CAD to worsen from -0.7% in FY17 to -1.4% in FY18 and -1.5% in FY19. It predicts an acceleration in per capita real output growth for India from 5.3% in the current year to 6.8% by FY23.
India will regain the tag of ‘fastest-growing major economy’ in FY19, with China forecast to grow at 6.5%. The world economy is set to grow 3.6% and 3.7% in 2017 and 2018, respectively, which is 0.1 percentage point higher for both the years than earlier estimates.
India’s GDP fell to a three-year low of 5.7% in the June quarter, causing downgrades in estimates for the full fiscal year. The World Bank expects the economy to grow at 7%, down from 7.2% estimated earlier. The RBI expects growth in gross value added (GVA, which is adjusted for net taxes to arrive at GDP) to slip to 6.7% in its latest assessment, down from the earlier estimate of 7.3%.
The IMF also pointed out that growth doesn’t necessarily mean matching gains in income for a majority of the population. “In China and India, for example, where real per capita GDP grew by 9.6% and 4.9% a year, respectively, in 1993–2007, the median household income is estimated to have grown less—by 7.3% a year in China and only 1.5% a year in India,” it said.