India could exceed imf growth forecast

India could exceed imf growth forecast

Domestic investment pickup to drive growth.

The International Monetary Fund (IMF) has tweaked its growth forecasts for the world at large and for India for 2019, from its World Economic Outlook figures of Fall, 2018. This should not cause much disquiet. The IMF’s forecasts keep varying, depending on the assessment possible with available data, and must be understood as being indicative. If India grows at 7.5% in a slowing world economy that will struggle to grow at less than half that rate that should be reassuring. Incidentally, it is cold comfort that China’s growth is expected to slow to 6.2%. That is on a base of $14 trillion. The larger an economy, the harder it is for it grow at a blistering pace. However, the good news is that India’s growth is likely to be better than what the IMF forecast suggests.

India is, at present, going through a credit squeeze: their huge burden of non-performing assets prevents banks from lending as freely as they would otherwise have. Once recapitalisation and resolution of bad loans have been completed, as these would substantially be, over the course of 2019 and 2020, banks would be free to start lending vigorously. Infrastructure investment has been subdued, being limited, for the most part, to state-funded projects. Contracts that incorporate the right lessons from the public-private partnerships of the last decade would allow, once again, private participation in infrastructure building. Indigenousmanufacture of defence equipment is poised to take off. The consumer goods industry is beginning to exhaust spare capacity. Power supply in rural areas is increasingly reliable during the day, paving the way for new agroprocessing industry across the land. All told, investment will likely see a sharp pickup.

When the global economy slows down, oil prices tend to be tame, and that is good news for India. So long as governments at the Centre and the states resist the temptation to splurge or cut oil taxes sharply, this would help contain the fiscal deficit, which, for the Centre and the states together, has not come down much over the last five years, the IMF reminds India.