India is on the path to hold its
position as one of the world’s fastest-growing economies as reforms start to
bear fruit. India’s economy is constantly gaining momentum as the growth
reached the fastest pace, in seven quarters, in January through March.
According to International Monetary
Fund (IMF) report, India’s GDP is poised to grow by 7.3 per cent in the 2018-19
fiscal and 7.5 per cent in 2019-2020 on strengthening of investment and robust
private consumption.
The report stated that
the near-term macroeconomic outlook for India is broadly favourable. The
Indian economy has made a robust recovery from the two shocks that started from
late 2016 which were demonetisation and implementation issues related to the
GST. The November 2016 currency exchange plan and the July 2017 Goods and
Services Tax (GST) rollout, resulted in sluggish growth to 6.7 per cent in
fiscal year 2017-18, but a recovery is underway supported by an investment
pickup. Generally, India is getting assistance from good macroeconomic
policies, stability-oriented policies as well as some vital reforms that have
been introduced in recent years.
On the other hand, the report flagged
some risks including higher oil prices, tightening global financial conditions
and tax revenue shortfalls. Headline inflation is pegged to grow at 5.2
per cent in fiscal year 2018-19, as demand conditions tighten, along with the
recent depreciation of the rupee and higher oil prices, agricultural minimum support
prices and housing rent allowances. The report projects current account deficit
to amplify further to 2.6 per cent of the GDP on soaring oil prices and strong
demand for imports, offset by a slight increase in remittances.
As per the IMF report, financial sector
reforms have been undertaken to address the twin balance sheet problems, as
well as to revive bank credit and enhance the efficiency of credit provision by
speeding up the cleanup of bank and corporate balance sheets.
Stability-oriented macro-economic policies and progress on structural reforms
continue to bear fruit in the country, the report said.
The government is due to release gross
domestic product data on August 31, 2018 for the three months ended June. A
robust growth rate may not necessarily reverberate with voters in elections
next year as they continue to face issues such as unemployment and farm
distress.
There are other risks too. The
rupee has slipped 7 per cent against the dollar this year, the worst performer
among major Asian currencies, threatening the inflation outlook. The Reserve
Bank of India delivered its second straight interest rate hike last week
as policy makers seek to maintain economic stability against a global backdrop
of trade tensions and high oil prices.
Latin Manharlal Group
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