India will retain its record as the world's fastest-growing major economy, expanding at a rate of 7.3 percent this fiscal year despite a cut of 0.2 percent from the projection made in January, according to the International Monetary Fund (IMF) World Economic Outlook report released Tuesday.
This is Gita Gopinath's first flagship report after she took over this year as the IMF's chief economist.
The Outlook report said that India's growth is “supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy”.
Even though the IMF cut the growth projection for this year by 0.2 percent from the 7.5 percent made in January, it is higher than last year's growth of 7.1 percent and is projected to increase to 7.5 percent next year, though lower than the earlier 7.7 projection.
The Outlook said the cuts reflect “the recent revision to the national account statistics that indicated somewhat softer underlying momentum”.
Over the medium term, India's growth is expected to stabilize at just under 7.75 percent “based on continued implementation of structural reforms and easing of infrastructure bottlenecks”, it said.
The report noted that “important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of nonperforming assets under a simplified bankruptcy framework”.
India, however, remains a bright spot in a global economy, whose growth is expected to be only 3.3 percent this year, down from last year's 3.6 percent, but expected to reach that figure next year.
The IMF growth figures for India are slightly higher than those of the Asian Development Bank's (ADB) Outlook report released last Wednesday.
ADB said that India's growth will tick up from 7 percent last year to 7.2 percent this year and 7.3 percent next year fueled by stronger consumption.
“The recovery in agriculture and stronger domestic demand, with reform having strengthened the health of banks and corporations, and as the implementation of a value-added tax makes domestic firms and products more competitive” will help the growth, it said.
According to the IMF's Outlook report, China is on a low growth trajectory as its economy matures. It grew by 6.6 percent last year and is projected to slow to 6.3 percent this year and 6.1 next year.
The United States grew by 2.9 percent last year is projected to slow down to 2.3 this year and 1.9 next year, the report said.
Fast-growing economies like India and China support the aggregate growth for the world in addition to emerging markets and developing economies, it noted
The IMF said that to secure its growth prospects it was essential that India continues to implement structural and financial sector reforms and makes an effort to reduce public debt through continued fiscal consolidation.
One of the suggestions it made to reduce public debt was to further reduce subsidies, which may not be politically palatable.
Other suggestions for India in the Outlook include improving the governance of public sector banks; reforms to hiring and dismissal regulations to incentivse job creation and absorb the country’s large demographic dividend, and land reform to facilitate and expedite infrastructure development.
Consumer prices in India increased by 3.5 percent last year and is projected to increase by 3.9 percent this year and 4.2 percent next year, it said.
On the foreign exchange front, current account balance fell by 2.5 percent last and is projected to go down by 2.5 percent this year and 2.4 percent next year.