In a morale booster to the government, the International Monetary Fund (IMF) in its latest World Economic Outlook report though nudged down its global growth projection for 2016 from 3.4 percent to 3.2 percent, but has said that India's growth is projected to notch up to 7.5 percent in 2016-17, overtaking China's GDP by more than 1 percent, driven by private consumption and increased industrial activity. It said that India remains a bright spot against the backdrop of a sluggish global economy. The global agency also said that with the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth.
IMF said that in 2015, India's growth was 7.3 percent, which would increase to 7.5 percent in the next two years of 2016 and 2017, as forecast in October and noted that in India, monetary conditions remain consistent with achieving the inflation target of 5 percent in the first half of 2017, although an unfavourable monsoon and an expected public sector wage increase pose upside risks.
It also said that lower commodity prices, a range of supply side measures, and a relatively tight monetary stance have resulted in a faster-than-expected fall in inflation, making room for nominal interest rate cuts, but upside risks to inflation could necessitate a tightening of monetary policy.
The fund though has projected a decline in China's growth rate from 6.9 percent in 2015 to 6.5 percent in 2016 and 6.2 percent in 2017, but is more confident than it was in January that stimulus measures there will work. But short-term optimism could not mask enduring worries about China further out. It also suggested some remedies for the global economy like keep monetary policy loose, augment it with fiscal stimulus where possible, and add some pro-growth reforms to the mix.
