Indian Economy Slowdown Temporary, Say IMF, World Bank
Though the International Monetary Fund and World Bank slashed India’s growth projections, they believe it is a temporary aberration.
While the Indian economy has slowed down in the last quarter to 5.7 per cent growth, the International Monetary Fund (IMF) and the World Bank have expressed confidence in the track the economy is currently on.
IMF chief Christine Lagarde said on Oct. 15 that the Indian government’s initiatives of demonetization and the Goods and Services Tax (GST) have put Indian economy on a solid track despite the fact that IMF downgraded India’s growth projection for the current and next fiscal.
“Turning to India… we have slightly downgraded India; but we believe that India is for the medium and long-term on a growth track that is much more solid as a result of the structural reforms that have been conducted in India in the last couple of years,” Lagarde said, adding that India is facing a “bit of a short term slowdown” as demonetization and the GST were monumental efforts by the government.
“But for the medium term, we see a very solid track ahead for the Indian economy,” she said.
The sentiment was echoed by the World Bank, with chief Jim Yong Kim saying at the annual meet on Oct. 13 in Washington: “The goods and services tax would be very good for Indian growth, but for now the sense is that companies are waiting until that passes before really making investment and taking action. So, our sense is that this (slowdown in growth) is temporary.”
He added: “The reform process has been significant. We think that certainly in the medium and long term, the growth will reflect the seriousness of Prime Minister Modi’s government in making those reforms.”
The World Bank projected that India’s GDP will slow down from 8.6 per cent in 2015 to 7 per cent in 2017 on Oct. 12.
Lagarde, meanwhile, also believed that metrics of inflation, fiscal deficit and structural reforms would deliver jobs. “We very much hope that the combination of fiscal, because the deficit has been reduced, inflation has been down significantly, and the structural reforms will actually deliver the jobs that the Indian population, particularly the young Indian people expect in the future,” she said.
Kim said the reforms undertaken by the Indian government are quite “substantial.”
“We’ll wait to see what happens on the business report this year, but we’ve been very encouraged with the reforms that he has already taken. He knows that there are more to do,” he said.
Indian Finance Minister Arun Jaitley, who is on a week-long trip to the United States, said that the economic reforms came at a time when the country was at a high growth trajectory. He believed that was the time to try to fix the roof. “You don’t have to wait for a downward slide in order to do it,” Jaitley said. “I think, this was just the right time to bring about structural changes.”
The global nod for the government policies, Jaitley said, would increase investor confidence in India.
“Now that you have the global economy also improving, and that’s the mood that I’ve seen at the IMF-Bank this time — the IMF’s own projection for the world economy this year is 3.6 per cent and next years is 3.7 per cent — the global tailwinds will also give better impetus to domestic growth,” said Jaitley. “I think, we should be looking forward to a much higher growth trajectory (for India) in the days to come.”