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10 things the IMF numbers tell us about the Indian economy

Ten things that can be assessed from the results of International Monetary Fund’s annual assessment of the Indian economy, including its predictions for 2018-19 and 2019-20. Here’s what one gets from the IMF numbers:

(1) India’s GDP growth forecast doesn’t show any change —it remains 7.3% for the current fiscal year and 7.5% for 2019-20.

(2) The composition of this growth is fascinating: gross investment as a percentage of GDP is projected to jump from 30.6% in the fiscal year 2018 to 32.2% this year. IMF definitely believes the long-awaited turnaround in investment demand is finally taking place.

(3) The IMF forecasts that growth in merchandise exports will be a secure 13.2% this fiscal year. If it happens, this will be the highest rate of growth in exports since 2011-12. This forecast means that all three engines of economic growth namely consumption, investment and exports will start igniting from the current year.

(4) This rise in growth is anticipated to lead to a rise in consumer price inflation to an average of 5.2% this fiscal which is by far above the Reserve Bank of India’s (RBI’s) target of 4% .

(5) Economic growth will steer to a rise in money supply and it is expected to go up by 11.4% this fiscal, a rate of growth that has not been seen since 2013-14. A revival in bank credit to the private sector is also projected to rise by 13.6% this year as well as the highest rate of growth since 2013-14.

(6) Savings as a percentage of GDP is predicted to increase, although not in the same level as an investment. In fact, the savings to GDP ratio this year is anticipated to be lower than in 2016-17.

(7) IMF believes that one reason for the savings figure is higher owing to the fact that the general government fiscal deficit, including that of the states, will be 6.6% of GDP, compared to 7% last fiscal.

(8) The percentage growth in imports is also expected to be lower this year, but that is largely a base effect—import growth was negative in 2016-17.

(9) IMF have the opinion that foreign direct investment will be rebound this year, after a drop last fiscal. Yet net portfolio inflows are expected to be much lower, which is not good news for the capital markets. There will probably be a small balance of payments deficit and foreign exchange reserves will be spent a little.

(10) After saying all this, IMF emphasizes that “risks are tilted to the downside from external factors, such as higher global oil prices and tighter global financial conditions, as well as domestic financial vulnerabilities”.

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Abhijit Sharma