India has been declared the sixth largest economy in the world with a GDP of 2.6 trillion in 2017, as per the recently released report by Indian Monetary Fund (IMF). India displaced France to stand firm on this position, while the United States of America, China, Japan, Germany, and the United Kingdom are ahead in the race.
HIGHLIGHTS FROM IMF REPORT:
India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency, and improve tax compliance. “While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness,” the report said.
India’s high public debt and recent failure to achieve the budget’s deficit target call for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility, the report said.
The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes, the IMF said.
AN ESSENTIAL PIECE OF ADVICE FROM THE IMF
“The corporate debt overhang and associated banking sector credit quality concerns exert a drag on investment in India,” it said. The global financial lender was apparently referring to the massive Rs 13,700-crore fraud at the Punjab National Bank in which Modi is the main accused.
According to the report, the recapitalisation plan for major public-sector banks announced in 2017 will help replenish capital buffers and improve the banking sector’s ability to support growth. “However, recapitalisation should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks’ debt recovery mechanisms should be further enhanced,” the IMF said.
LAST YEAR VERSUS THIS YEAR
India has jumped from 6.7 per cent in 2017 to 7.8 per cent in 2018. As per the analyses were done by the World Economic Outlook (WEO), over a passage of one year the Indian economy was supported by resurgent net exports and strong private consumption, respectively, while investment growth slowed.
With lesser exports and strong private consumption, Indian economy was losing up the burden of currency exchange and GST was, of course, a win-win situation to revamp the economy of the country.
“Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment,” the WEO said.
“The growth rate in China is projected to soften down during this period,” it said, adding that over the medium term, its economy is projected to continue re-balancing away from investment toward private consumption and from industry to services, but nonfinancial debt is expected to continue rising as a share of GDP, and the accumulation of vulnerabilities clouds the medium-term outlook.
Corporate debt overhang exerts a drag on investment in India, says IMF.