India to remain the world's fastest growing economy: IMF

The International Monetary Fund (IMF) on Tuesday marginally lowered its 2015-16 growth forecast for India, which will still remain the world’s fastest growing major economy, and expressed optimism about its future prospects.

IMF now expects the Indian economy to grow 7.3% this year, lower than the 7.5% it projected in July. It expects growth to accelerate to 7.5% the following year.

That will cement India’s position as the fastest growing major economy, ahead of China, which the IMF expects will grow 6.8% this year, followed by 6.3% in the next.

IMF also lowered its global growth forecast by 0.2 percentage points to 3.1%, citing an uneven recovery as well as increasing downside risks to the growth outlook for emerging market economies that are grappling with declining commodity prices, depreciating currencies and growing volatility in financial markets.

The Washington-based multilateral institution attributed the lowering of India’s growth forecast to the weakening of global external demand and the consequent impact on Indian exports.

“India is not as open as China but when external demand weakens, it will impact Indian exports. Though domestic demand remains resilient, global developments are going to have an impact on India,” Gian Maria Milesi-Ferretti, deputy director of the research department at IMF, said at a press conference.

Indian exports contracted for the ninth consecutive month in August falling 20.7% to $21.2 billion in the month.

Still, falling commodity prices will help India because it is a net commodity importer and also in controlling inflation, Milesi-Ferreti said.

In its bi-annual World Economic Outlook, the release of which coincided with IMF’s annual meetings in the Peruvian capital Lima, the multilateral agency said India’s economy will also benefit from the “recent policy reforms, (and) a consequent pick-up in investment”.

It also said a sharp fall in inflation, on account of lower oil and agricultural commodity prices, has created space for further monetary policy easing but warned of upside risks to inflation. Retail inflation eased to 3.66% in August from a revised 3.69% a month ago.

HT Mint, New Delhi, 7th Oct. 2015