Retaining its 7.5 per cent GDP expansion forecast for India in 2016 and 2017, IMF on Tuesday asked the government to cut down subsidies, initiate labour reforms and dismantle infrastructure bottlenecks to sustain strong growth.
In its World Economic Outlook, the International Monetary Fund (IMF) said India should continue fiscal consolidation, underpinned by revenue reforms and further reduction in subsidies.
“Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector,” it said.
In 2015, India’s growth was 7.3 per cent, which would increase to 7.5 per cent in the next two years of 2016 and 2017, IMF had earlier forecast.
Retaining its last forecast, IMF said, “With the revival of sentiment and pick-up in industrial activity, a recovery of private investment is expected to further strengthen growth.”
“In India, growth is projected to notch up to 7.5 per cent in 2016-17, as forecast in October. Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes,” it said.
IMF pointed to lower commodity prices, a range of supply side measures and a relatively tight monetary stance resulting in a faster-than-expected fall in inflation in India, making room for nominal interest rate cuts.
“But upside risks to inflation could necessitate a tightening of the monetary policy,” it warned. However, monetary conditions remain consistent with achieving the inflation target of 5 per cent in the first half of 2017, although an unfavourable monsoon and an expected public sector wage increase pose upside risks, it said.
IMF cut its 2016 global growth forecast for the fourth time in the past year to 3.2 per cent, citing China’s slowdown, persistently low oil prices and chronic weakness in advanced economies. This was down from 3.4 per cent projected in January.
It said a prolonged period of slow growth has left the global economy more exposed to negative shocks and raised the risk that the world will slide into stagnation.
IMF, however, upgraded its China growth forecast by 0.2 percentage point for this year and the next to 6.5 per cent and 6.2 per cent, respectively.
China clocked 6.9 per cent growth in 2015 when India had recorded 7.3 per cent expansion.