The International Monetary Fund (IMF) has projected India to grow at 7.5 percent for the year 2016 against China’s 6.3 percent, making India the fastest growing economy in the world. China’s economy has slowed down and its stock markets have taken a hit in the second half of 2015. The devaluing of the yuan has also not helped spur the economy.
The IMF’s forecast of India comes a day after India’s Finance Minister Arun Jaitley had said that the world needs “additional shoulders” other than China to push economic growth and this presents an opportunity for India.” “It is a great opportunity and if we continue to move in the direction in which we are, I see over the next few years with a more friendly environment in the world as far as the economic scenario is concerned, probably our growth rates will move up, our ability to grow will move up and our ability to fight poverty at least will also improve,” Mr Jaitley added.
The growth rates in India are expected to improve due to recent policy reforms, an increase in investment, lower commodity prices, according to the latest report released by IMF. Demand in India is expected to remain strong. “With China gradually transitioning into an environment of lower growth, India could durably occupy the top growth spot among large emerging markets,” the report said.
Global economic growth is forecast to slowdown to 3.1 percent in 2015, down 0.3 percentage point from the July estimate. “In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies,” the IMF report added.
Inflation in India has come down largely due to the fall in global crude oil prices and agricultural commodity prices. The IMF report has reiterated the need for more reforms in taxation, lower subsidies and fiscal consolidation.
China vs India
As the debate continues on whether India could replace China as the driver for global growth, India still has systemic issues that need to be addressed. With China predicted to grow at 6.3 percent and India at 7.5 percent, the progress could be hindered if reforms do not get implemented on the ground in India. China, on the other hand, would have to deal with its economic slowdown and implement more market reforms such as allowing foreign investors to invest directly in technology and other related sectors. As for India, infrastructure development would be its key focus to sustain the growth rate of 7.5 percent and above to make it the new normal rate of growth.
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