Bretton Woods twins bet big on India’s growth, over China

Washington, April 14:

The World Bank and the International Monetary Fund (IMF), also called the Bretton Woods twins, have forecast India’s growth to speed up to 7.5-8 percent next fiscal, outpacing China, thanks to the reforms focus of Prime Minister Narendra Modi’s government.

IMFIn separate studies released on Tuesday – South Asia Economic Focus by the World Bank and World Economic Outlook by the IMF – the two multilateral institutions also said India will benefit much from the investment-led growth, as also the recent dip in global crude prices.

“Growth in China is expected to decline to 6.8 percent this year and 6.3 percent in 2016,” said IMF, adding: “Elsewhere in emerging and developing Asia, India’s growth is expected to strengthen from 7.2 percent last year to 7.5 percent this year and next.”

The World Bank’s projection on India was a tad better. “Growth is expected to accelerate to 7.5 percent in fiscal 2015-16. It could reach 8 percent in fiscal 2017-18 on the back of significant acceleration of investment growth to 12 percent during fiscal years 2016-18.”

The forecasts come against the backdrop of a host of agencies expressing renewed confidence on the Indian economy in recent weeks. Global ratings major Moody’s raised India’s sovereign rating outlook to positive from stable, while Fitch reaffirmed its stable outlook on India.

Similarly, the think-tank of rich nations, the Organisation for Economic Cooperation and Development (OECD), endorsed high growth prospects for India, even as the Asian Development Bank (ADB) said the country will grow at 7.8 percent in 2015-16 and at 8.2 percent in 2016-17.

Both the World Bank and the IMF also had some advice for India, notably in the wake of the unexpected dip in global crude prices that cut the oil import bill for India, a net importer of energy, by as much as 55 percent in February.

“Several years of downgraded medium-term growth prospects suggest it is also time for major emerging market economies to turn to important structural reforms to raise productivity and growth in a lasting way,” the World Economic Outlook said.

“In India, post-election recovery of confidence and lower oil prices offer an opportunity to pursue structural reforms,” it said, adding that removal of infrastructure bottlenecks in power enhance competition and productivity and important components.

“Cheap oil gives the opportunity to rationalise energy prices, reducing the fiscal burden from subsidies and contributing to environmental sustainability”, said World Bank South Asia Chief Economist Martin Rama.

“India has already taken encouraging steps to decouple international oil prices from fiscal deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels,” the report said, adding the challenge will be to stay the course.

Both the multilateral institutions also had their share of concerns, notably on imports.

“The export performance of the region has disappointed,” said the World Bank, even as it found capital flows to India rising sharply. “After a promising rebound last year, exports are now slowing down. By end-2014, export growth was close to zero across the region.”

Yet, the IMF said the Indian rupee managed to hold on, unlike other similar economies like Russia. “Among the remaining major emerging markets, India – a major oil importer – saw its currency strengthen by close to 10 percent in real effective terms.”

On inflation, too, the two reports felt it would be under control.

“Together with favourable food prices, cheaper oil has contributed to rapid deceleration of inflation. South Asia went from having the highest inflation rate among developing regions to having the lowest in barely one year,” said the World Bank.

The IMF take: “In India, inflation is expected to remain close to target in 2015.”

At the global level, the IMF felt there will be a marginal improvement next year, but with diverse disparities, notably on inflation. “Overall, the global growth is forecast at 3.5 percent in 2015 and 3.8 percent in 2016, broadly the same as last year.” (IANS)

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