Ahead of US President Barack Obama’s trip to India, the Bretton Woods institutions have struck an upbeat note on the prospects of India’s economic growth. The International Monetary Fund has projected that India is expected to grow at 6.3% this year and 6.5% in 2016, potentially a watershed year when the country’s economy is likely to cross China’s growth rate.
The IMF has lauded a slew of economic reforms initiated by the Narendra Modi government. “I think the reform plans of the new Prime Minister are promising. We are going to have to see the speed of the implementation,” said Gian Maria Milesi-Ferretti, Deputy Director in IMF’s Research Department.
In 2014, India’s growth rate was 5.8 per cent against China’s 7.4%, said the World Economic Report update by the International Monetary Fund. India’s growth rate in 2013 was 5% as against China’s 7.8%.
The IMF official, however, tempered this optimistic projection with a cautionary note, saying the impact of Prime Minister Narendra Modi-led government’s economic reform would be difficult to predict as these are structural reforms and are growing gradually over the medium term.
“Key is going to be implementation,” Milesi-Ferretti said.
The report highlighted that global growth will get a boost from lower oil prices, which reflect higher supply. This is, however, projected to be offset by a host of negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies.
Global growth in 2015–16 is projected at 3.5% and 3.7%, a downward revision of 0.3% relative to the October 2014 World Economic Outlook (WEO).
In a report released last week, the World Bank has projected that the Indian economy will catch up with China’s growth by 2016-17. “According to our analysis, India will catch up with China’s growth in the year 2016 and 2017,” says World Bank chief economist and senior vice-president Kaushik Basu.
Since coming to power in May 2014, the Modi government has reignited the India growth story by going ahead with critical economic reforms like the increasing FDI caps in insurance and defence sectors.
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