The International Monetary Fund on Wednesday said that the macroeconomic outlook for India for the 2018-’19 financial year is “broadly favourable”, as the economy continues to recover after the implementation of the Goods and Services Tax regime, and the November 2016 demonetisation.
The Gross Domestic Product growth rate will rise to 7.3% in the present financial year and 7.5% in 2019-’20, the IMF said in its country report for 2018. However, it added that overall inflation will rise to 5.2% due to higher oil prices, implementation of the minimum selling price for farmers, depreciation of the rupee and housing rent allowances. India’s Current Account Deficit will also widen to 2.6% of GDP due to higher oil prices and strong demand for imports, the IMF said.
The fund said that shortfalls in tax revenue due to problems with implementation of the GST may continue. A tightening of global financial conditions could increase external borrowing costs for India, and the global trade conflict may hurt exports. However, the report added, India’s relatively low openness to trade means that any spillover effects of a global trade war are likely to be minimised.
The report agreed with the Centre’s budget, which said that there would be a reduction in fiscal deficit for 2018-’19. “The authorities’ presentation shows a reduction of about 0.2% of GDP, while the IMF projects a reduction of 0.4% of GDP,” it said.
Acknowledging the role of public sector banks in providing financial access to poor people, the report nevertheless recommended that the government slowly reduce its presence in the financial sector.
Meanwhile, Ranil Salgado, the International Monetary Fund’s mission chief for India, told PTI that the country now contributes about 15% to global economic growth, next only to China and the United States. “India has three decades before it hits the point where the working age population starts to decline,” he said. “So that’s a long time. This is India’s window of opportunity in Asia. It’s somewhat only a few other Asian countries have this.”
“For the next three decades, India is a source of growth for the global economy and could be even longer,” he added. “But three decades where India can be almost what China was for the world economy for a while.” He said India’s recent macroeconomic policies had been “stability oriented”.
Salgado said the two biggest achievements were the implementation of a national GST and the introduction of the insolvency and bankruptcy code.