IMF Projections for Indian Economy

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IMF Projections for Indian Economy

Recently, the IMF Executive Board team visited New Delhi, Mumbai and Kolkata. As per the IMF Projections Indian Economy is all set to rebound in the financial year starting April 1, 2017 pegging its growth at 7.2 per cent in 2017-18.

IMF Projections | Note

IMF’s assessment of its member economy is under Article IV of its Articles of Agreement by which it holds bilateral discussion with members generally every year and submits the Staff Appraisal Report to the Fund’s Executive Board.

IMF Projections | Highlights

  • It unambiguously said the Indian economy has logged robust growth in recent years. This has been helped by “the large terms of trade gain, positive policy actions, including implementation of key structural reforms, a return to normal monsoon rainfall and reduced external vulnerabilities”.
  • Listing out a litany of positives in the Indian economy, it said India’s inflation has remained low after the downfall in global commodity prices, a range of supply- side measures and a relatively tight monetary stance.
  • It also noted the renewal of fiscal consolidation at the Central level since 2016-17 which has been complemented by measures to enhance the quality of public spending, the Fund said.
  • Pertinently while praising India’s strong economic performance of the past few years for the authorities’ strong policy actions, including fiscal consolidation and an anti-inflationary monetary policy, the Board’s Executive Directors recommended “continued vigilance” to potential domestic and external shocks.
  • According to the Fund, India’s external vulnerabilities are in check, with the current account deficit (CAD) likely to remain compressed and international reserves standing at 360 billion US dollars as of late December 2016. These Foreign Exchange Reserve would provide around eight months of import cover.
  • IMF’s senior functionaries acknowledged India’s strong policy push for cleaning up bank balance sheets and welcomed legislation establishing the new bankruptcy code. It took particular note of the relaxation in the regime for foreign ownership of Asset Reconstruction Companies (ARCs) purported to address non-performing assets of banks. This coupled with the UDAY scheme, aimed at reviving distressed state-owned electricity distribution companies (DISCOMs), envisages state governments taking on 75 per cent of the DISCOMs debt owed to banks should help rein in further bank asset quality deterioration.
  • It also took due cognizance of the country’s financial inclusion agenda which has broadened over the past two years, evolving from providing greater access to bank accounts and financial services to introducing more remunerative savings vehicles.
  • It is optimistic that this would diminish the lustre of conventional gold-based savings, even as the advent of gold monetization scheme could boost financial intermediation by channelling domestic gold holdings to gold savings account.

IMF Projections | Shortcomings of the report

IMF did not gloss over the fact that the post-November 8, 2016 demonetization of high value currencies, cash shortages and payment disruptions together all undermined consumption and business activity. However, India’s economic growth, which is projected to slow to 6.6 per cent in the current fiscal, would rebound to 7.2 per cent in 2017-18.

IMF Projections | Challenges

  • IMF did not desist from conceding risks ahead for the Indian economy by stating that persistently-high household inflation expectations and large fiscal deficit (government borrowings) remain key macroeconomic challenges. It cautioned that this might limit policy space for bolstering growth through demand measures.
  • It also noted that excess capacity in crucial industrial sectors and strains in financial and corporate sector balance sheets remain a drag on private investment with weak external demand continuing to constrain India’s exports.

IMF Projections | Conclusion

The 2017-18 Union Budget has persisted with a far-sighted fiscal management strategy while ensuring higher capital expenditure for productive segments, India’s growth story as the optimum point in the world would remain undisturbed. India should trade cautiously in the forthcoming protectionist world while raising domestic private demand and investment from multiple sources.

By | 2017-02-26T07:22:29+00:00 February 26th, 2017|Categories: Economy, GS Paper 3|Tags: , , , |0 Comments

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