The International Monetary Fund today lowered India's growth projection to 6.7 percent in 2017, 0.5 percentage points less than its previous two forecasts in April and July, attributing it to demonetisation and introduction of the Goods and Services Tax.
It also lowered the country’s growth for 2018 to 7.4 percent, 0.3 percentage points less than its previous two projections in July and April.
India’s growth rate in 2016 was 7.1 percent, which saw an upward revision of 0.3 percentage points from its April report.
“In India, growth momentum slowed, reflecting the lingering impact of the authorities' currency exchange initiative as well as uncertainty related to the midyear introduction of the country-wide Goods and Services Tax,” the IMF said in its latest World Economic Outlook report.
Strong government spending and data revisions in India led to an upward revision of 2016 growth to 7.1 percent (6.8 percent in April), with upward revisions of about 0.2 percentage point, on average, for 2014 and 2015.World Economic Outlook Report, IMF
The latest report, released ahead of the annual meetings of the IMF and the World Bank, puts China slightly ahead of India in terms of growth rate for the year 2017. China is projected to grow at 6.8 percent in 2017, which is 0.1 percentage more than its two previous projections in April and July.
However, India is likely to regain the tag of the fastest growing emerging economies of the world in 2018, with China projected to grow at 6.5 percent in 2018, it said.
Despite the cut in IMF’s forecast, India will continue to be an attractive destination for foreign investors, Madan Sabnavis, chief economist at CARE Ratings, told BloombergQuint. India is going through a normal business cycle and recovery will have to come from within leaving the government with little scope to change the current economic scenario, he added.
One has to be patient with growth. There are no quick fixes. Growth will be gradual.Madan Sabnavis, Chief Economist, CARE Ratings
A lot will depend on demand revival which is expected to come in the October-December quarter, Sabnavis added.
The 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 percent in the medium term, IMF said.
In India, simplifying and easing labour market regulations and land acquisition procedures are long-standing requirements for improving the business climate.World Economic Outlook Report, IMF
Between 1999 and 2008, India on an average grew at a rate of 6.9 percent, IMF said adding that for the next three years its growth rates were 8.5 per cent in 2009, 10.3 in 2010 and 6.6 in 2011. In the years 2012, 2013 and 2014 it grew at a rate of 5.5 percentage, 6.4 and 7.5 respectively. In 2015, India clocked a growth rate of 8 percentage points.
For the year 2022, the IMF has projected a growth rate of 8.2 percent, as against its growth projection of 6.7 in 2017 and 7.4 in 2018.
Watch the full discussion with CARE Ratings’ Madan Sabnavis and ICRA’s Aditi Nayar here.
(With inputs from BloombergQuint’s Azman Usmani)