GST to boost India’s strong growth: IMF

NEW DELHI: Indian economy is likely to continue to grow strongly, the International Monetary Fund has said ahead of the G20 meet in China, crediting its latest assessment to support from private consumption and saying that the goods and services tax will provide a further boost when it is rolled out. “In India, high-frequency data suggest continuing strong growth, underpinned by private consumption,” the IMF said in a surveillance note released on Thursday, capturing ‘Global prospects and policy challenges’.

The 11th G20 Summit will be held on September 4-5 in Hangzhou in east China. The assessment comes a day after India reported a muted 7.1% growth in the first quarter of 2016-17, down from 7.9% in the previous quarter and the slowest in five quarters. The recent data has been more encouraging, with the manufacturing Purchasing Managers’ Index or PMI soaring to a 13-month high.

SUBDUED GLOBAL GROWTH
The International Monetary Fund has a subdued outlook for global growth, with downside risk. The multilateral lender that oversees G20 work said financial markets have recovered from ‘Brexit’ but recent data “show muted activity, slower trade growth, and very low inflation, pointing to an even more modest pace of global growth this year”, flagging lack of investments as the biggest concern. “Despite record-low interest rates, investment continues to disappoint, reflecting demand conditions as well as high corporate sector debt and weak financial sector balance sheets in many countries,” the surveillance note said, pointing to multiple threats to global growth.

The note said, “Potential threats to growth include stalled reforms and protracted low inflation that dampens inflation expectations further, raises real interest rates, and, thereby, lowers incentives to invest.” The IMF said China’s transition to a more balanced growth path could also face difficulties with potentially significant spillovers. “In addition, geopolitical risks and uncertainties about the steps to follow the ‘Brexit’ vote continue to threaten the outlook, especially in Europe, where financial institutions are facing a number of challenges,” the report said.

The IMF called for accommodative monetary policy by countries where inflation is not a concern, Japan and euro area, and fiscal boost by the likes of Germany that have room to support global growth. The lender urged the group of 20 major economies to make a positive case for globalisation and restore the role of trade in supporting economic growth.

The G20 will need a joint effort to manage spillovers, it said. “Low growth, high inequality, and slow progress on structural reforms are among the key issues that G20 leaders will discuss at their meeting in Hangzhou, China, this weekend,” IMF’s managing director Christine Lagarde said in a blog. “The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time,” she cautioned.

INDIA REPORT
The IMF said the GST will provide a boost to the economy. “India has recently taken important steps toward a national goods and services tax which, when fully implemented, promises to boost tax buoyancy and growth, including by enhancing the efficiency of the internal goods and services market,” the note said. The IMF also welcomed India’s decision to shift to an inflation targeting framework.

The government is setting up a monetary policy committee that will set interest rates, with a target of 4% and a margin of 2% on either side. “The recent formal adoption of a symmetrical inflation target by India should provide a robust institutional foundation for maintaining price stability,” the IMF said.