India is expected to bounce back from the cash shortages caused by demonetisation and grow at a healthy 7.2% in the financial year 2017-2018, the International Monetary Fund said on Tuesday. It also recommended improving market efficiency and predicted a growth rate of 7.7% for the financial year 2018-2019.
The hurdles faced by the economy as a result of the lack of cash, especially for private consumption, will ease in 2017, the Washington-based organisation said. A favourable monsoon will also help improve the growth rate, it added. “In India, growth is projected to rebound to 7.2% in FY2017-18 and further to 7.7% in FY2018-19.”
The main challenge before the Indian economy will be to improve agricultural productivity. Agriculture remains the most labour-intensive sector of the economy and employs around half of India’s workers. Farmers require more flexibility in distributing and marketing their crops as this will help improve competitiveness, efficiency, and transparency, it added.
Continued fiscal consolidation and a monetary policy to reduce inflation will contribute to the economic stability of the country, the IMF said in its Regional Economic Outlook for Asia and the Pacific. According to the report, Asia will see a rise in growth from 5.3% in 2016 to 5.5% in 2017.
Earlier this month, a United Nations report pegged India’s growth rate at 7.1% in 2017 and 7.5% in 2018. The analysis, released on May 1, had also warned the country of the risks it faces from concentration of bad loans in public sector banks. Soon after, the government issued an ordinance to empower the Reserve Bank of India to tackle the problem of non-performing assets in India’s banking sector. The ordinance will be used to amend Section 35A of the Banking Regulation Act, 1949, and empower the RBI to get other banks to quickly recover bad loans from defaulters.