The International Monetary Fund (IMF) on Tuesday lowered India’s growth forecast for 2017 to 6.7% from its earlier estimate of 7.2%, citing lingering impact of demonetisation and transition cost to the Goods & Services Tax (GST).
But, India is expected to regain the fastest growing major economy tag next year when it is forecast to grow 7.4% (slower than earlier estimate of 7.7%), higher than China’s 6.5%. IMF also expects the Indian economy to grow 8% in the medium term on the back of reforms undertaken so far.
“The move (GST), which promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8% in the medium term,” IMF said in its World Economic Outlook (WEO).
IMF forecast is the latest in the series of downgrades in India’s growth prospects unveiled by other multilateral agencies such as World Bank, Asian Development Bank and OECD.
Earlier this month, RBI lowered its growth forecast for 2017-18 to 6.7% from 7.3% and put the onus of reviving the economy on the government. It called for structural reforms and expects growth to rebound in the quarters ahead.
The government has faced criticism over its handling of the economy after growth slowed to a three-year low of 5.7% April-June but PM Narendra Modi has slammed critics for their “pessimism” and had detailed the steps taken by the government to push growth. According to the IMF in China, growth is projected to notch up to 6.8% in 2017, and to slow to 6.5% in 2018.
The upward revision to the 2017 forecast — 0.2 percentage point relative to the April 2017 WEO — reflects the stronger-than-expected outturn in the first half of the year underpinned by previous policy-easing and supply-side reforms. It said global upswing in economic activity is strengthening and global growth, which in 2016 was the weakest since the financial crisis at 3.2%, is projected to rise to 3.6% in 2017 and to 3.7% in 2018. The forecasts for both 2017 and 2018 are 0.1 percentage point stronger compared with the April 2017 WEO forecast.