The International Monetary Fund (IMF) has forecast India will grow 7.5 per cent in 2015-16, up from 7.2 per cent in the current year, a projection less optimistic than that of the Modi government.
In the Union budget 2015, the government estimated growth of up to 8.5 per cent in 2015-16.
The Indian economy is the bright spot in the global landscape, becoming one of the fastest-growing big emerging market economies in the world, the IMF said in an official statement. The report stressed the urgency of certain key reforms, including the bottlenecks in the energy, mining and power sectors; infrastructure gaps, land acquisition processes and environmental clearances.
In its annual assessment of the Indian economy in the mandatory Article IV annual report, the IMF said that India’s vulnerabilities have receded more than those of most emerging markets and sentiment has been revived.
“The Indian economy is reviving, helped by positive policy actions that have improved confidence and lower global oil prices…To continue on this trend, India needs to revitalise the investment cycle and accelerate structural reforms,” according to the statement.
“New investment project announcements have started to pick up, particularly in the power and transport sectors,” said IMF Mission Chief for India Paul Cashin. He also noted that bolstering financial sector health and further financial inclusion would support growth going forward.
Mr. Cashin said that while India is well placed to cope with external shocks, there are possible risks on the horizon, both external and domestic. These include spillovers from weak global growth and potential global financial market volatility that could be disruptive, including from any unexpected developments as the United States begins to raise its interest rates. On the domestic front, the weaknesses in corporate balance sheets, especially in light of the increase in corporate leverage of the past few years, and worsening bank asset quality bear watching, as they could weigh on growth.
The IMF report also said that India’s economic profile recently got a lift as the country improved the way it measures economic output. “The revised national accounts series incorporates numerous conceptual and methodological improvements that make them more consistent with international best practices,” it said adding that the report itself was prepared before the revisions were released by the Central Statistics Office.
Mr. Cashin also gave thumbs up to the Modi government’s recent move to introduce a flexible inflation-targeting framework. “It will help deliver low and stable inflation, and diminish the prospect of renewed bouts of high inflation,” he said.
Among the reforms the report recommended are steps in the agriculture sector for efficient procurement, distribution, and storage of food in the public system. Greater flexibility in labour markets and improvements in education for meeting the rising shortages of skilled labour were among the key reforms suggested.
