International Monetary Fund (IMF) has posited India as the world’s growth engine for the next 30 years.
What are the findings of IMF?
IMF has projected a medium-term growth rate of 7.75 per cent on the back of macro-financial and structural policies to help boost inclusive growth.
The GST and the insolvency code are rightly expected to go a long way in lifting India’s productivity.
This will also lead to an uptick in investment activity to 32.2 per cent of GDP in 2018-19 and 2019-20, against 30.6 per cent in 2017-18.
IMF has projected a 13.2 per cent increase in exports this year and 10.1 per cent the next.
The Fund-Bank combine tends to view India as a counterpoint to China as a market reformer and a country with credible democratic institutions.
What are the macroeconomic concerns of India?
The current account deficit (CAD), or the savings-investment gap, is estimated at 2.6 per cent this fiscal and 2.2 per cent in the next.
The rising oil prices and strong demand for imports offset by a slight increase in remittances.
Whether a rising CAD can create situations of volatility on the external account is a moot point.
It is not clear on what basis the IMF is banking on an improvement in investment, which has dipped from 34.2 per cent of GDP in 2014-15 to 30.6 per cent now.
There isn’t convincing evidence of any surge in demand in agriculture, industry and services.
Apart from this an area of acute concern is India’s poor socio-economic indicators, affecting both labour productivity and technological up gradation.
What measures needs to be taken?
IMF suggests that public dis savings should be curtailed to curb the CAD.
In this situation, the reliance on FDI and portfolio flows cannot be underestimated.
A projected headline inflation of 5.2 per cent in 2018-19 is way above the Reserve Bank’s comfort level, with the IMF hoping for a prudent fiscal policy to keep it in check.
Reducing trade documentation requirements, lowering tariffs and generally improving governance may avoid choking of growth.
Despite supply-side reforms, which have pushed India up several notches in the ‘ease of doing business index’, investment needs a demand stimulus.
