IMF says global growth recovery an opportunity for Indian economy

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IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

The International Monetary Fund (IMF) on Tuesday pared its growth forecast for the Indian economy by half a percentage point to 6.7% for 2017, blaming the lingering disruptions caused by demonetisation of high value currencies last year and the roll out of the Goods and Services Tax (GST).

However, IMF said the structural reforms undertaken by the Prime Minister Narendra Modi-led government would trigger a recovery—above 8% in the medium term.

In its latest World Economic Outlook, IMF said the global economy is going through a cyclical upswing that began midway through 2016. It raised the global growth estimate marginally for 2017 to 3.6% while flagging downside risks. The upward revisions in its growth forecasts including for the euro area, Japan, China, emerging Europe, and Russia more than offset downward revisions for the United States, the United Kingdom, and India.

“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 countrywide Goods and Services Tax,” it said in the WEO.

However, IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

One basis point is one-hundredth of a percentage point.

In its South Asia Economic Focus (Fall 2017) released on Monday, the World Bank reduced India’s GDP growth forecast to 7% for 2017-18 from 7.2% estimated earlier, blaming disruptions caused by demonetisation and GST implementation, while maintaining at the same time that the Indian economy would claw back to grow at 7.4% by 2019-20.

Both the Asian Development Bank as well as the Organisation for Economic Cooperation and Development (OECD) have also cut their growth projections for India to 7% and 6.7%, respectively, for fiscal 2017-18.

IMF said a gradual recovery in India’s growth trajectory is a result of implementation of important structural reforms. 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,” it added.

The multilateral lending agency said India needs to focus on simplifying and easing labour market regulations and land acquisition procedures which are long-standing requirements for improving the business climate. It also called for briding the gender gap in accessing social services, finance and education to accelerate growth in developing countries like India.

IMF said given faster-than-expected declines in inflation rates in many larger economies, including India, “the projected level of monetary policy interest rates for the group is somewhat lower than in the April 2017 WEO.”

In its monetary policy review last week, the Reserve Bank of India (RBI) kept its policy rates unchanged and marginally raised its inflation forecast for rest of the year.

Highlighting the growing income inequality within and among emerging market economies, IMF said a country’s growth rate does not always foretell matching gains in income for the majority of the population. “In China and India, for example, where real per capita GDP grew by 9.6% and 4.9% a year, respectively, in 1993–2007, the median household income is estimated to have grown less—by 7.3% a year in China and only 1.5% a year in India,” it said.

Source: Live Mint

Indian economy to pick up once impact of note ban fades: IMF

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IMF in its note titled ‘Global Prospects and Policy Challenges’ said, “Further subsidy reduction and tax reforms, including a robust design and full implementation of the Goods and Services Tax (GST), are necessary to attain medium-term fiscal consolidation plans.”

India’s economic growth is expected to pick up once the effects of cash shortages linked to the currency exchange initiative fade, the International Monetary Fund (IMF) has said. Prime Minister Narendra Modi on November 8 had announced scrapping of old Rs 500 and Rs 1000 notes, pulling out 86 per cent of the total currency in circulation.

 

Noting that India’s fiscal deficit is expected to continue narrowing in the near-term, the IMF in its note titled ‘Global Prospects and Policy Challenges’ said, “Further subsidy reduction and tax reforms, including a robust design and full implementation of the Goods and Services Tax (GST), are necessary to attain medium-term fiscal consolidation plans.”

 

It further observed that in some emerging economies like China and India reducing excessive corporate leverage and improving bank’s balance sheets or adopting more prudent risk-management practices, including to reduce currency and maturity balance sheet mismatches, will help reduce vulnerabilities to global financial conditions, possible capital outflows, and sharp currency movements.

 

The government last month pegged GDP growth at 7.1 per cent for 2016-17 despite the note ban. The Central Statistics Office (CSO) had put the figure for October-December at 7 per cent, compared to 7.4 per cent in the second quarter and 7.2 per cent in the first.

 

India’s growth was higher than China’s 6.8 per cent for October-December of 2016. The growth numbers were better than those projected by RBI (6.9 per cent) and international agencies like IMF (6.6 per cent) and OECD (7 per cent) in view of the cash recall. The Organisation for Economic Cooperation and Development (OECD) in February last year had projected the country’s growth at 7.4 per cent for 2016-17. Buoyed by higher-than-expected growth, Finance Minister Arun Jaitley has also said a 7 per cent expansion in the third quarter belies the exaggerated claims of note ban impact on the rural economy.

 

Source: http://www.financialexpress.com/economy/indian-economy-to-pick-up-once-impact-of-note-ban-fades-imf/589248/

OECD backs demonetisation, projects FY17 GDP growth at 7%

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The Organisation of Economic Cooperation and Development (OECD) has supported India’s demonetisation drive, asserting that immediate impact of the move on Indian economy will be transient.

The Organisation of Economic Cooperation and Development (OECD) has supported India’s demonetisation drive, asserting that immediate impact of the move on Indian economy will be transient.

“Implementing the demonetisation has had transitory and short- term costs but should have long-term benefits,” OECD said on Tuesday in its report, Economic Survey of India. OECD Secretary-General Angel Gurria said the impact of demonetisation on consumption pattern may just have been limited to the quarter ended December 31, 2016.

The Paris-based global policy forum projected a GDP growth rate of 7 percent in the current financial year, while estimating it to grow to 7.3 percent in FY18 and 7.7 percent in FY19.

The OECD comments come a few hours before the Central Statistics Office (CSO) releases Gross Domestic Product (GDP) growth estimates for Q3FY17 and the second full year advance estimates for 2016-17. The GDP estimates released in January projected that India would grow 7.1 percent in 2016-17 from 7.9 percent in the previous year.

Amid signs of slide in consumer goods sales and muted investment activity because of the cash crunch, it is highly likely that the CSO will sharply revise downwards India’s GDP growth in its second advance estimates. Economic Affairs Secretary Shaktikanta Das, who was also present at the launch of the report, said that the benefits and outcomes of demonetisation would be positive from next quarter. “The process of remonetisation is nearly complete. Any adverse impact of consumption in that quarter is not likely to spill over next year. So that is over and behind us,” Das said.

“The shift towards a less cash economy and formalisation should, however, improve the financing of the economy and availability of loans (as a result of the shift from cash to bank deposits) and should promote tax compliance,” the report said.

On November 8, Prime Minister Narendra Modi announced that existing 500 and 1000 rupee notes would cease to be legal tender, thereby sucking out 86 percent of the currency in circulation from the economy. The survey, however, said that the temporary cash shortage and wealth destruction, as fake currency and illegal cash will not be redeemed. T

he report further said that the implementation of the goods and services tax (GST) reform will contribute to making India more integrated market. “By reducing tax cascading, it will boost competitiveness, investment and job creation.

The GST reform — designed to be initially revenue-central — should be complemented by a reform of income and property taxes,” the OECD survey said.

The survey pointed out that investment is still held back by relatively high corporate income tax rates, slow land acquisition process, weak corporate balance sheets and high non-performing loans which weigh on banks’ lending and infrastructure bottlenecks.

Key recommendations of OECD included raising revenue, especially from property and personal income taxes, ensuring that government debt to GDP ratio returns to a declining path, as well as strengthening of public bank balance sheets by recapitalising them and promoting bank consolidation.

It also suggested simpler and flexible labour laws and a gradual reduction in corporate income tax from 30% to 25%, while broadening the tax base.

Source: http://www.moneycontrol.com/news/economy/oecd-backs-demonetisation-projects-fy17-gdp-growth-at-7_8569641.html