The International Monetary Fund (IMF) has lowered India’s growth projections in its World Economic Outlook released yesterday. IMF attributed the lowered estimates to factors like demonetisation and the mid-year implementation of the Goods and Services Tax (GST). Despite lowering the growth outlook, IMF stated that the negative effects will wane off soon and the Indian economy will bounce back.
For 2017, IMF revised its growth projections to 6.7% from its previous estimate of 7.2%. For 2018, IMF estimates India’s growth to be at 7.4%. According to IMF’s chief economist Maurice Obstfeld, this downgrade is just a blip in India’s long-term positive outlook. He also believes that the disruptions caused by GST in the Indian manufacturing sector is passing, and India’s growth outlook for the future looks good.
India’s economic slowdown has come at a time when the world economy is growing. For the world economy, IMF has increased its forecast to 3.6% from 3.5% for 2017. IMF also projects global growth of 3.7% for the year 2018.
Introduction of GST has resulted in a temporary slowdown in India’s large manufacturing sector. General consumption and business investments have declined across the country following the introduction of GST. Despite the recent slowdown, India’s economic growth is expected to bounce back due to the projected increase in general consumption.
GST is one of the major reforms implemented in India’s economic structure. India has a massive domestic market, and GST aims to unify this market under a single tax regime. Moreover, GST eliminates the indirect taxes imposed by the state and central governments on various goods and services.
Financial institutions across the world have revised economic growth projections for India. For the calendar year 2017, Morgan Stanley lowered India’s growth forecast to 6.4%. Credit rating agency Fitch recently lowered India’s growth forecast to 6.9% for the fiscal year 2017. Despite lowering the growth outlook, these agencies are in agreement that this slowdown is temporary and the Indian economy is all set for revival.