Future of India’s Economy as predicted by IMF

The International Monetary Fund (IMF)  came out with its bi-annual publication World Economic Outlook recently and it predicts about India’s economy in coming years. There are a lot of numbers, and lot of data. Here is the simplification of all of it and this is what is required for us to know that is related to India.

1. Indian Economy will grow slowly yet steadily:

We faced the lowest growth rate in 2012 of about 4.5% after about a decade or more. India is recovering from that slump and slumber and may add a well upto 1.9 percentage points in one year.

2. India would be most vibrant economy compared to its BRIICS counter parts:

Russia, Brazil and South Africa will remain very close to recession. Indonesia will also lag India by a bit. The only exception is China. Its economy is slowing, but it will continue to expand faster than India over the next few years.

g-pg1_IMF_web

 

3. Inflation will continue to be a problem:

India still has one of the highest levels of inflation in the world, and that too despite an economic slowdown (Stagflation) . The IMF forecast suggests that the Reserve Bank of India (RBI) will manage to get retail inflation below its immediate target of 8% by January 2015 but will struggle to meet its next target of 6% by January 2016. It is interesting that the statistical models used by the Indian central bank are also predicting a 7% inflation rate in March 2016, a percentage point higher than the subjective assessment of governor Raghuram Rajan. The most likely reason: India is now growing close to its diminished potential growth rate.

4. There still exist structural imbalances in the Indian Economy.

The fiscal deficit is still many times more than what comparable economies have. Even the slowing down South Africa and Brazil have better numbers than the India’s fiscal deficit, It is easier to shout about fiscal fundamentalism than face the fact that the sorry state of public finances is holding back the economy. Hope SIT examines the NIPFP report and places in the parliament soon to check the black money economy that could help bring our fiscal deficit down.

w_economy

5. The balance of global economic power continues to change:

From the slumber of past 5 years, we are now set to become a $2 trillion economy which we should have been 2-3 years back if we didn’t have the administration bottlenecks. Yet, better late than never as it is said, we would make the Indian economy the tenth largest in the world. We are expected to overtake Russia and Italy in 2016. And we will almost have caught up with France in 2019, according to the last available IMF forecast.

 

However, Economic size alone does not mean much unless living standards improve rapidly. Average incomes will have gone up six times in the 25 years since the radical economic reforms of 1991, but India is still a lower middle income country with lots of absolute poverty. As many are saying that this is the second coming of India’s Renaissance, if we can maintain this momentum till 2040, we will touch $12,000 by 2040, the sort of level at which mass poverty of India will truly be a history.

 

Read more at:  Legacies, Clouds, Uncertainties – IMF website.

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