by Elton Gomes
The International Monetary Fund (IMF) today projected Indias growth rate to be 7.3 percent in 2018 and 7.5 percent in 2019 as against 6.7 per cent in 2017. Although the projections are slightly lesser than what was predicted previously, India will still be one of the fastest growing countries among major economies.
The current projected growth rate is 0.1 percent lesser than what was predicted for 2018 and 0.3 percent for 2019. The IMF’s latest World Economic Outlook (WEO) update said that “India’s growth rate is expected to rise from 6.7 per cent in 2017 to 7.3 per cent in 2018 and 7.5 per cent in 2019, as drags from the currency exchange initiative and the introduction of the goods and services tax fade,” as per a PTI report.
Despite a minor downgrade in projections, India continues to perform better than China, according to figures in the WEO update. The report stated that “Growth in China is projected to moderate from 6.9 per cent in 2017 to 6.6 per cent in 2018 and 6.4 per cent in 2019, as regulatory tightening of the financial sector takes hold and external demand softens,” PTI reported.
The downgrade in Indias growth was mainly due to rising oil prices. At the news conference in Washington where the WEO report was released, Maurice Obstfeld, the director of the IMF’s research department, said that “the general tightening in general global financial conditions is (also) playing a role in affecting India’s growth,” IANS reported.
Gian Maria Milesi-Ferreti, the deputy director at the research department, further said that another reason for the downgrade was “the rising inflationary pressures”. Milesi-Ferreti said, “Monetary policy has tightened; it’s a bit tighter than under our forecast in April and that adds to oil and tighter global financial conditions in taking a little bit off growth for next year,” as per the IANS report.
The IMF estimated global growth to reach 3.9 percent in 2018 and 2019, which remains unchanged as the previous forecast. However, growth expansion is becoming less even, and risks to global growth are on the rise.
Increasing inflationary pressures and a looming trade war
Forecasting inflationary risks, the Reserve Bank of India (RBI), hiked the repo rate to 6.25 percent for the first time in four and a half years in June. Experts are of the opinion that the RBI might hike the repo rate further keeping in mind the inflationary risks due to increasing oil prices and a weaker rupee. The IMF said, Central banks in key emerging market economies including Argentina, India, Indonesia, Mexico, and Turkey have raised policy rates, responding to inflation and exchange rate pressures, the Economic Times reported.
The inevitable trade war between China and the US could be threatening economic recovery and could lower medium-term growth prospects, the IMF said. The international body has cut growth forecast figures for India, Brazil, and Argentina, but growth projections for the US, China, and Russia remain the same.
In spite of a reduction in growth projections, India will retain its top spot in terms of growth. Just a week ago, the World Bank pegged India as the sixth largest economy in the world. With a gross domestic product amounting to $2.59 trillion, India overtook France, and is likely to surpass the UK, who is currently placed fifth.
Elton Gomes is a staff writer at Qrius