India can be the engine of global growth for decades, says IMF

India will be an engine of growth for the global economy for the next few decades and it could play the role China did for the world economy, the IMF said today, even as it recommended that the country take steps towards more structural reforms.

“India now contributes, in purchasing power parity measures, 15 per cent of the growth in the global economy, which is substantial,” said Ranil Salgado, the International Monetary Fund’s mission chief for India. This is behind only China and the US, he said.

Salgado said spillovers from India are not that big because it is not a very open economy.

“But of total global growth in purchasing power parity (PPP) terms, it’s 15 per cent of total global growth. Trading is not as high as China trade levels,” Salgado said, as the IMF Executive Board released the report of its annual consultations with India.

He said the IMF views India as a “long run source of global growth”.

“India has three decades before it hits the point where the working-age population starts to decline. This is India’s window of opportunity in Asia.

“For the (next) three decades, it (India) is a source of growth for the global economy and could be even longer. ...India can be almost what China was for the world economy for a while,” Salgado said.

7.3% GDP forecast

In its report, the IMF Executive Board has forecast India’s growth to rise to 7.3 per cent in FY2018/19 and 7.5 per cent in FY2019/20, on strengthening investment and robust private consumption.

“The Indian economy is recovering from the two shocks that started from late 2016: demonetisation and then the kind of implementation issues related to the GST. We see growth recovering. Generally, India is benefiting from good macroeconomic policies; stability-oriented policies as well as some important reforms that have been done in recent years,” he said.

Although there are short-term issues, the IMF views GST as a long-term major gain for India.

“It’s something that’s difficult to do. Other countries have struggled. In India it’s much more complex because you have 29 States and Union Territories and you need agreement. I think that was a great achievement,” he said.

The Insolvency and Bankruptcy code is the other big achievement, he said. “We are seeing certain positive steps there and we hope that can continue,” he said.

“The third (big achievement) from an economist’s point of view is the inflation targeting framework that you now have in the Reserve Bank of India, formally adopted in 2016 but informally even earlier,” he said.

Other steps

And then there are some key smaller steps like improving the business climate, further liberalising FDI, he said.

“In the near term, it’s just to make sure that effective implementation of those are ongoing. If you think of the insolvency and bankruptcy code, it’s a difficult change. Basically, the underlying system to resolve bad assets from the corporate sector side is something new. It takes time and experience has to be gained. And we’re seeing some of the hitches along the way there, but generally things seem to be moving in the right direction,” the senior IMF official said.

Noting that the government is taking steps to “streamline and simplify” GST, he said the IMF believes that this is important. “Overall we’re seeing efforts to improve the balance sheet of banks as well as the corporate sector. In our view, these are all important things that need to continue,” he said.

Salgado said the IMF is now suggesting India take steps towards structural reforms. “...we are saying that steps to structural reforms have to continue and, in some ways, have to even take a step further up,” he said identifying labour reforms, improving the business climate, and enhancing infrastructure as key areas for continued reforms.