India to outpace China this year: IMF

By Ishaan Gera

  • 15 Apr 2015
Reuters | Credit: Christine Lagarde

Indian economy is expected to grow at 7.5 per cent this fiscal outpacing China as the fastest growing economy in the world, International Monetary Fund (IMF) has said, reinforcing such forecasts by World Bank among other global agencies.

IMF, which released its first issue of the biannual publication World Economic Outlook on Tuesday, highlighted that growth forecasts for most emerging and developing economies with the important exception of India, are slightly worse.

The report from IMF comes a day after World Bank reiterated its stance of India growing at a steady 7.5 per cent this year with the economy expected to grow at 8 per cent by 2017.

"Growth will benefit from recent policy reforms, a consequent pick-up in investment and lower oil prices," IMF said.

Though World Bank is more optimistic about the prospects of Indian economy, IMF kept its forecast for 2015-16 at 7.5 per cent. These reports come days after Mood's upgraded India's rating from stable to positive.

The IMF report said Chinese economy is expected to slow down to 6.8 per cent this year and 6.3 per cent in 2017. It did not alter the forecast for global growth, with the global economic growth projected at 3.5 per cent this year and 3.8 in the next.

"Risks to global growth are now more balanced relative to six months ago, but remain tilted to the downside. Macroeconomic risks have slightly decreased, but financial and geopolitical risks have increased. In advanced economies, growth is projected to strengthen in 2015 relative to 2014, but in emerging market and developing economies it is expected to be weaker," IMF said.

IMF said that inflation is India expected to remain close to the target in 2015 and pegged it at 6 per cent for the current year with price rise expected to moderate to 5.7 per cent next year on account of cheaper oil and favourable food prices. The RBI in its monetary policy statement pegged inflation at 5.8 per cent for the current fiscal. Data released on Monday showed inflation slowing to a three-month low at 5.17 per cent despite the unseasonal rains and firming up of oil prices. 

"Lower oil prices will raise real disposable incomes, particularly among poorer households, and help drive down inflation," IMF said.

Even though India is expected to remain the world's fastest growing major economy, a feat it attained last quarter, the size of the economy will remain small compared with China's $10 trillion economy.

A report released by US Department of Agriculture shows that India would be the world's third-largest economy in 2030 after US and China and would see its economy growing from $2 trillion to $6.6 trillion while the Chinese economy would growth to $22.2 trillion in the same period.

Though international organisations are predicting a spectacular growth for the Indian economy, a lot would depend on the government’s ability to jump-start the reform process. While the policies look good on paper, India has always had the problem of implementation as bureaucratic hurdles and infrastructure bottlenecks impede the speed of reforms.

(Edited by Joby Puthuparampil Johnson)