NEW DELHI: India has something to cheer about. Chritsine Lagarde, MD of International Monetary Fund, said India’s growth is expected to exceed that of China’s this year and the economy is poised to double over the decade to 2019.
“In this cloudy global horizon, India is a bright spot,’’ the IMF MD said on Monday.
“IMF expects growth to pick up to 7.2% this fiscal year and accelerate further to 7.5% next year-making India the fastest growing large economy in the world.’’
Yet, global recovery remains ‘too slow, too brittle, and too lopsided’, even six years after the financial crisis. In spite of cheaper oil and improvement in the US growth, IMF had to cut global growth forecast. IMF predicts global growth at 3.5 per cent in 2015 and 3.7 per cent in 2016.
There are significant risks to fragile global recovery. Key is the ‘asynchronous monetary policy’, where the US and the UK are normalising monetary policy while Europe and Japan are increasing monetary stimulus. Even if this process is well managed, it may result in excessive volatility in financial markets, including India.
Another risk is Euro area and Japan in low growth-low inflation mode for a prolonged period, which could make it tougher for them to reduce unemployment and excessive public and private debt, and increase risk of recession and deflationary pressures.
The third risk is the triple hit of a stronger US dollar, higher global interest rates, and more volatile capital flows.
Most developed economies are weighed down by high debt, high unemployment and low growth, low inflation, which often results in households cutting back on consumption and investment because of worries about the future, she said.
With this as the backdrop, Lagarde said Indian economy will double in a decade to 2019. While adjusting for differences in purchase prices between economies, India’s gross domestic product will exceed that of Japan and Germany combined. India’s output will also exceed the combined output of the three next largest emerging market economies-Russia, Brazil, and Indonesia, she said.
The recent policy reforms and improved business confidence have provided a booster shot to economic activity, Lagarde said.
She commended India’s fiscal policy for its sound, growth-friendly revenue and expenditure framework for a clear medium-term consolidation path as also the budget’s focus on infrastructure.
The nation must resolve outstanding issues in public-private partnership, regulatory uncertainty and bureaucratic holdups, ease land acquisition, expending clearances and establishing a stable regulatory regime to attract private sector, which is also critical along with public sector to invest $1 trillion that the country’s infrastructure needs.
She welcomed India’s monetary policy’s focus on flexible inflation targeting for a robust foundation for maintaining price stability. To sustain rapid growth India must invest in infrastructure to ensure people are cyber-connected as also highway-connected.