New York: In the gloomy global economic picture painted by the International Monetary Fund (IMF), India retains its rank as the world’s fastest-growing major economy, tying with China, with a projected growth rate of 6.1 per cent for the current fiscal year, despite an almost one per cent cut in the forecast.
However, the IMF’s World Economic Outlook (WEO) released on Tuesday projected India’s economy to pick up and grow by 7 per cent in the 2020 fiscal year.
The WEO cut India’s growth rate by 0.9 per cent from the 7 per cent made in July and by 1.2 percent from the 7.3 per cent in April.
In contrast to the dark view of the economy within India, when viewed globally, the nation’s picture seems brighter despite the cuts.
The world economy is projected to grow only 3 per cent this year and 3.4 per cent next year amid a “synchronised slowdown”, according to the WEO.
Explaining the cut in growth projection for India, the WEO said: “India’s economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of non-bank financial companies.”
It added that “corporate and environmental regulatory uncertainty” were other factors that weighed on demand.
IMF’s projected growth rate of 6.1 per cent for 2019-20 is consistent with the Indian Monetary Policy Committee’s forecast.
About the international scenario, IMF’s Chief Economist Gita Gopinath wrote in the foreword to the WEO: “The global economy is in a synchronized slowdown, with growth for 2019 downgraded again – to 3 percent – its slowest pace since the global financial crisis (in 2007-08). This is a serious climb down from 3.8 percent in 2017, when the world was in a synchronised upswing.”
WEO projected China’s economic growth to slow down to 5.8 per cent next year.
In the Euro area, growth is projected to be only 1.2 percent this year and 1.4 next year, with the German economy expected to grow by a dismal 0.5 per cent this year.
United States is expected to slightly better with a 2.1 per cent growth projected for this year and 2.4 per cent for the next.
Gopinath blamed the global slowdown on rising trade barriers, uncertainty surrounding trade and geopolitics, and structural factors, such as low productivity growth and an aging population in developed countries.
WEO said India’s growth in 2019 is sharply lower than the 6.8 per cent in 2018 “for idiosyncratic reasons, but is expected to recover in 2020”.
The reduction in India’s growth projection for this year “reflects a weaker-than-expected outlook for domestic demand”, WEO said.
India’s future “growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption”, it added.
In the medium term, the IMF expects India’s growth to stabilise at about 7.3 per cent over the medium term, based on continued implementation of structural reforms.
The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
It said: “A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term. This should be supported by subsidy-spending rationalisation and tax-base enhancing measures.”
Other measures it suggested included reducing the public sector’s role in the financial system, reforming the hiring and dismissal regulations that “would help incentivise job creation and absorb the country’s large demographic dividend”, and land reforms to expedite infrastructure development.
The auto sector is one of the areas seriously affected globally, according to the WEO.
“The automobile industry contracted in 2018 for the first time since the global financial crisis, contributing to the global slowdown since last year,” it said.
Global car sales fell by three per cent last year, while the number of automobile units manufactured declined by 1.7 per cent, in value terms it fell by 2.4 per cent, WEO said.
The number of auto units produced by China fell by four per cent, its first decline in more than two decades, according to the WEO.
It said the two main reasons for the decline of the auto sector were the removal of tax breaks in China and the rollout of new carbon emission tests in Europe.
The auto industry, it noted, had a large global footprint and vehicles and related parts are the world’s fifth largest export product, accounting for about 8 percent of global goods exports in 2018.