IMF raises India’s fiscal 26 GDP forecast to 6.4%, citing reform momentum
The IMF, with its “reform momentum” as a factor, raised its growth forecast for India to 6.4% on Tuesday as it continues to the world’s fastest growing major economies.
One of the drivers of India’s growth is “reform momentum supports strong consumption growth and drives public investment”, the IANS report said.
Calendar year forecasts make India even highr
Said this reflects a “more benign external environment than the assumptions in April”, the update to the World Economic Outlook (WEO) has increased India’s forecast for the current fiscal year by 0.2%, 0.2% higher than April’s forecast and 0.1% higher for the next fiscal year.
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The WEO also said in the footnote that if the forecast is based on a calendar year, India’s growth forecast will be 6.7% this year and 6.4% for the next year. (India’s fiscal year is the basis of the main forecasts in the report, starting from April. For most countries, the IMF follows a calendar year.)
Tariff rollback and inflation relief help India’s outlook
Apart from the momentum of reform, the rise in India’s growth prospects is due to the U.S. suspending higher tariff rates, reducing inflation’s conversion to 3.7% this year, while a 4% drop in food prices next year.
Despite the turbulent threat of tariff war, WEO has increased global growth prospects for the current calendar year by 0.3% from April figures to 3.2%, and next year’s global growth prospects increased by 0.1% to 3.2% from April.
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The report said the increase reflects “exceeding front loads” [or stockpiling of imports in the US] Higher tariffs are expected; lower than the efficient U.S. tariff rate announced in April; improvements in financial conditions, including due to weak dollar and fiscal expansion in some major jurisdictions. ”
For the next fastest growing major economy, WEO has increased its current calendar year’s growth forecast by 0.8% to 4.8%. Despite forecast growth of 0.2%, it is expected to drop to 4.2% next year.
Developed economies show moderate growth, global risks remain
The U.S. growth outlook grew 0.1% this year to 1.9%, and next year’s growth outlook grew 0.3% to 2%. Overall, for developed countries, WEO has increased its outlook by 0.1% this year to 1.5% and 1.6% next year.
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The report warns that “a rebound in effective tariff rates could lead to weak global growth”. It added: “The increased uncertainty could start more serious activities, as the deadline for additional tariffs will also not progress without a substantial permanent agreement.”
India must focus on employment, infrastructure and trade reform: IMF
To continue its growth trajectory, Igan said, “priorities will include promoting job creation and absorbing excessive labor in the agricultural sector by retraining the workforce, by allowing more labor market flexibility”.
She said India should also continue to invest in infrastructure and “eliminate trade restrictions.” “In the medium term, India needs to continue investing in education, stabbing land reforms, expanding social safety nets, and reducing the traditional Chinese tape festival to make businesses perform better”.
(Input with IANS)
