Thursday, 26 April 2018

IMF backs India’s growth story; reforms bearing fruits

India has been declared the sixth largest economy in the world supported by major reforms undertaken in the recent past, including the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance. 

According to the database of the International Monetary Fund’s World Economic Outlook (WEO) for April 2018, India’s Gross Domestic Product (GDP), the worth of the economy, clocked in at $2.6 trillion for 2017, which is well over the $2.5 trillion milestone that separates big economies from pretenders.

India is now the world’s sixth largest economy, displacing France. The five economies ahead are the United States, China, Japan, Germany and United Kingdom.

The IMF in its report has projected India to grow at 7.4 per cent in 2018 and 7.8 per cent in 2019, lifted by strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax.

According to both the World Bank and IMF reports and projections, India has finally overcome the adverse impact of the both demonetisation and introduction of unified system of taxation for goods and services, no matter how disruptive they were.

Expressing that the Indian economy is on the right track toward recovery, the IMF said that India’s combined gross debt, both at the central and state level, is set to decline by roughly 9 per cent to 61.4 per cent of the GDP by 2023-24. The global organisation explained that this would not only support the scenario for lowering interest rates but can also lead towards a significant rating upgrade for the country.  

The IMF suggested that the fiscal target is more or less in line with the central government’s target of bringing down the debt-to-GDP ratio to 40 per cent by 2024-25. The committee on fiscal discipline had earlier called for a combined debt-to-GDP ratio of 60 per cent by 2022-23 (40 per cent for centre and 20 per cent for state governments). A mix of high nominal GDP growth and gradual reduction in the overall deficit would pave the way for a lower debt-to-GDP ratio.  

However, the IMF has warned India against the recent frauds and bad loans, which can lead to a higher fiscal deficit. India also faces a high risk of inflation from rising prices in several sectors but the IMF has still shown its faith in the Narendra Modi-led BJP government, considering the government’s focused spending in the all-important infrastructure sector, which had encountered a slowdown in past years.  

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