The International Monetary Fund increased India’s growth forecasts for this and the upcoming fiscal years to 6.4% on Tuesday, citing its “reform momentum” as one of the contributing causes. India is still the major country with the fastest rate of development in the world.
According to Deniz Igan, a division leader at the Research Department, “reform momentum supporting robust consumption growth and a push for public investment” was one of the factors propelling India’s growth.
The World Economic Outlook (WEO) Update increased estimates for India for the current fiscal year by 0.2% from the April projections and by 0.1% for the following fiscal year, citing a “more benign external environment than assumed in the April” as why.
The WEO also stated in a footnote that India’s growth estimates would be 6.7% this year and 6.4% next year if the projections were produced on a calendar year basis. The report’s primary forecasts are based on India’s fiscal year, which begins in April. The IMF adheres to the calendar year for the majority of nations.)
Igan stated at a news conference in Washington at the release of the WEO that, in addition to the reform momentum, the reasons for the upward revision of India’s growth prospects are the suspension of higher tariff rates threatened by the US and downward revisions of inflation to 3.7% this year and 4% next year driven by lower food prices.
The WEO increased the global growth projection for the current calendar year by 0.3% from the April figures to 3.2% and for the following year by 0.1% to 3.2%, notwithstanding the potential for unrest due to the tariff conflicts.
The report stated that the rises are caused by “stronger-than-expected front-loading [or stockpiling of imports in the US] in anticipation of higher tariffs; lower average effective US tariff rates than announced in April; an improvement in financial conditions, including due to a weaker US dollar, and fiscal expansion in some major jurisdictions”.
The WEO increased its growth forecast for the current calendar year by 0.8% to 4.8% for China, the major country with the next fastest rate of growth. Despite a 0.2% increase in predictions, it is expected to drop to 4.2% next year.
The United States’ growth forecasts increased by 0.1% to 1.9% this year and by 0.3% to 2% the next year.
Overall, the WEO increased the projection for advanced nations by 0.1% to 1.5% this year and 1.6% next year.
A “rebound in effective tariff rates could lead to weaker growth” internationally, the research cautioned.
“Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements,” it stated.
According to Igan, “priorities would include fostering job creation and absorbing excess labor from the agricultural sectors, by reskilling labor, by allowing more labor market flexibility” if India were to continue on its current growth track.
She added that India should keep making investments in infrastructure and “removing trade restrictions.”
“In the medium term” , she stated, “India needs to continue to invest in education, take a stab at land reform, extend the social safety net, and reduce red tape to allow businesses to perform better”.
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