IMF forecasts 7.3% GDP growth for India in 2018-19 and 7.5% in 2019-20

August 11, 2018

The International Monetary Fund (IMF) in its report has projected India’s GDP growth 7.3% in the 2018-19 fiscal and 7.5% in 2019-2020 on strengthening of investment and robust private consumption. India’s near-term macroeconomic outlook for India is broadly favourable.

Key Highlights of IMF Report

Headline inflation: It is projected to rise to 5.2% in fiscal year 2018/19, as demand conditions tighten, along with recent depreciation of rupee and higher oil prices, housing rent allowances and agricultural minimum support prices. But it has averaged 3.6% in fiscal year 2017/18 which 17-year low, reflecting low food prices on return to normal monsoon rainfall, agriculture sector reforms, subdued domestic demand and currency appreciation.
Current account deficit (CAD): It is projected to widen further to 2.6% of GDP on rising oil prices and strong demand for imports. CAD will be offset by slight increase in remittances
Financial sector reforms: They have been undertaken to address twin balance sheet problems, as well as to revive bank credit and enhance efficiency of credit provision by accelerating cleanup of bank and corporate balance sheets. India’s stability-oriented macro-economic policies and progress on structural reforms are continuing to bear fruit.
Way Forward: Continued fiscal consolidation is needed for India to lower elevated public debt levels, supported by simplifying and streamlining GST structure. Further, while important steps have been taken to improve recognition of Non-Performing Assets (NPAs) and recapitalise Public Sector Banks (PSBs), more needs to be done. Persistently-high household inflation expectations and large general government fiscal deficits and debt are still key macroeconomic challenges.
PSB Reforms: Large fraud in PSBs highlights financial sector weaknesses and underscores need for government to take further steps to improve PSBs’ governance and operations, including by considering more aggressive disinvestment.
Economic risks: Domestic economic risks are tilted to downside and external side risks include further increase in international oil prices, tighter global financial conditions, retreat from cross-border integration including spillover risks from global trade conflict and rising regional geopolitical tensions. Domestic risks pertain to tax revenue shortfalls related to continued GST implementation issues and delays in addressing twin balance sheet problems and other structural reforms.