India’s economic growth for 2017 and 2018 will be slower than earlier projected, the International Monetary Fund (IMF) said in its latest World Economic Outlook released on Tuesday.
The report cited “lingering impact” of demonetisation and the Goods and Services Tax for the expected slowdown during the current and the next year.
The IMF projected India to grow at 6.7% in 2017 and 7.4% in 2018, which are 0.5 and 0.3 percentage points lower than the projections earlier this year, respectively.
Union Finance Minister Arun Jaitley earlier told a gathering in New York on Monday that the implementation of GST has been going on smoothly and accused Opposition parties of trying to “derail” it.
India’s slowdown is happening even as the world economy is picking up steam and is projected to grow faster than earlier calculations.
The IMF has revised upwards “global growth projections to 3.6% for this year and 3.7% for the next — in both cases 0.1 percentage point above our previous forecasts,” Maurice Obstfeld, IMF Economic Counsellor and Director of Research, said at a press conference at the beginning of the World Bank - IMF annual meetings.
Union Finance Minister Arun Jaitley will attend the meetings.
“Among emerging market and developing economies, higher domestic demand in China and continued recovery in key emerging market economies supported growth in the first half of 2017. 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,” the report said.
The report said “pickups in investment, trade, and industrial production, coupled with strengthening business and consumer confidence, are supporting the recovery,” globally.
“With growth outcomes in the first half of 2017 generally stronger than expected, upward revisions to growth are broad based, including for the euro area, Japan, China, emerging Europe, and Russia,” it says, noting that the downwards revisions for United States, the United Kingdom, and India are offset by the global positive trends.
The IMF has meanwhile revised upwards, India’s growth performance for 2016 in its latest calculations, owing to strong government spending and “data revisions in India,” which is now 7.1% as opposed to 6.8% in April. The report said the downward revisions for 2017 and 2018 reflect “still lingering disruptions associated with the currency exchange initiative introduced in November 2016, as well as transition costs related to the launch of the national Goods and Services Tax in July 2017.”
The report, however, strikes a positive note on the medium term impact of GST. It “promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8 percent in the medium term,” the report said. In 2015, the Indian economy had grown at 8% .
”Many attempts have been made by political groups to derail the GST, but I am glad that their own State governments are not listening to them because they know 80% of the money is going to come to them so they don't have to appease an ill-informed central leader of the party and let the revenues of their own State suffer," he said at an event organised by the Confederation of Indian Industry (CII) and the U.S.-India Business Council (USIBC).
“…there are going to be different complaints -- some legitimate, some manufactured,” the Minister said, adding that the government needs to have capacity to distinguish between a genuine and a manufactured complaint.
Mr. Jaitley said the GST Council meets every month and reviews the situation to make amends to the programme. "It's been a fairly smooth transition," he said.
Mr. Jaitley is scheduled to speak at the Columbia University on Tuesday and at the Harvard University on Wednesday. He will also meeting U.S. business leaders in Boston on Wednesday, amid increasing concerns among the business and investor communities about India’s economy. He arrives in Washington DC on Thursday for the IMF-World Bank meetings.
