The International Monetary Fund on Monday said India will grow at 7.3% in the 2018-’19 financial year. The country’s Gross Domestic Product growth rate accelerated to 8.2% in the first quarter of 2018-’19.
The global body, in its World Economic Outlook, also downgraded its growth forecast for India for 2019-’20 from 7.5% to 7.4%. But India will continue to be the fastest-growing economy, according to IMF data. It predicted China’s GDP growth at 6.6% in 2018-’19 and downgraded it to 6.2% for 2019-’20.
The international organisation said that India’s growth has rebounded from “transitory shocks” such as the demonetisation of high value currency notes and the introduction of the Goods and Services Tax. The IMF called for reforms in labour and land markets in the country, as well as improving the business climate.
The IMF said that monetary policy normalisation and a stronger dollar in the United States has put pressure on the exchange rates in emerging economies like Brazil, India and South Africa, among others. The world body said that in these circumstances, government intervention in the foreign exchange market should be “limited to addressing disorderly market conditions”.
The international organisation said that inflation is expected to pick up in India due to a narrowing output gap, and the effects of exchange rate depreciation and rising fuel prices. It called for a tightening of monetary policy, a move the Reserve Bank of India did not take when it kept interest rates unchanged last week.
‘Global growth rates have plateaued’
The IMF said that global growth rates have hit a plateau at 3.7%, and would continue to remain at this level in 2019-’20.
“Last April, the world economy’s broad-based momentum led us to project a 3.9 per cent growth rate for both this year and next,” IMF Chief Economist Maurice Obstfeld said. “Considering developments since then, however, that number appears over-optimistic: rather than rising, growth has plateaued at 3.7%.”
“There are clouds on the horizon,” Obstfeld added. “Growth has proven to be less balanced than hoped. Not only have some downside risks that the last World Economic Outlook identified been realised, the likelihood of further negative shocks to our growth forecast has risen. In several key economies, moreover, growth is being supported by policies that seem unsustainable over the long term.”
The IMF chief economist said emerging economies were coping better than the developed ones, but their susceptibility to large global shocks has risen. “Any sharp reversal for emerging markets would pose a significant threat to advanced economies, as emerging market and developing economies make up about 40% of world GDP.”