India to register a growth rate of 7.2% in 2015: IMF

The Dollar Business Bureau A day after a McKinsey report quoted that India will register 6.5% growth in 2016, the International Monetary Fund (IMF) forecasts a growth of 7.2% for 2014-15 and 7.5% for 2015-16, based on the recently revised GDP methodology. The Indian economy is reviving, helped by positive policy actions that have improved confidence and by lower global oil prices, says the IMF in its annual assessment of the Indian economy To continue on this trend, India needs to revitalize the investment cycle and accelerate structural reforms, says the report and adds, the Indian economy is the bright spot in the global landscape, becoming one of the fastest-growing big emerging market economies in the world. “Growth numbers are now much higher and the current account deficit is comfortable, in part due to the fall in gold imports and lower oil prices,” said Paul Cashin, IMF Mission Chief for India. “New investment project announcements have started to pick up, particularly in the power and transport sectors.” He also noted that bolstering financial sector health and further financial inclusion would support growth going forward. While the country is well placed to cope with external shocks, there are possible risks on the horizon, both external and domestic. “Spillovers from weak global growth and potential global financial market volatility could be disruptive, including from any unexpected developments as the United States begins to raise its interest rates,” says Cashin. On the domestic front, the weaknesses in corporate balance sheets—especially in light of the increase in corporate leverage of the past few years—and worsening bank asset quality bear watching, as they could weigh on growth India’s economic profile recently got a lift as the country improved the way it measures economic output. (The IMF staff report, however, was prepared before the release of these new growth numbers.) The revised national accounts series incorporates numerous conceptual and methodological improvements that make them more consistent with international best practices. “The revised growth figures support our view that economic recovery in India is under way, albeit pointing to a somewhat faster pace than we, and others, previously believed,” Cashin says. “These GDP revisions portray a more resilient performance of the services and manufacturing sectors of the economy.” But while public and private consumption look stronger, he added, investment activity continues to be held back by structural and supply-side constraints. The IMF will continue to examine the improved GDP methodology and its implications for its growth forecasts, and further details on the compilation methodology will enable a deeper understanding of India’s near-term and medium-term growth, the report says.  

This article was published on March 12, 2015.