According to IMF the near-term macroeconomic outlook for India is "broadly favourable" due to strengthening of investment and robust private consumption.
GDP
The International Monetary Fund (IMF) in its report stated that GDP of India is expected to grow at 7.3 per cent in the 2018-19 fiscal and 7.5 per cent in 2019-2020.
Inflation
The report also indicated that the Headline inflation in India is projected to rise to 5.2 per cent in fiscal year 2018-19, because of tighten demand, depreciation of the rupee, and higher oil prices, housing rent allowances and agricultural minimum support prices.
Headline inflation has been a 17 year low at 3.6 per cent in fiscal year 2017-18, normal monsoon rainfall, agriculture sector reforms, subdued domestic demand and currency appreciation helped in keeping the inflation in check.
In May 2018, the headline inflation has risen to 4.9 per cent breaching the RBI threshold of 4 percent, this is due to demand recovery and rising oil prices.
Current account deficit
The report says that strong demand for imports, increase in remittances and rising oil prices will widen the current account deficit further to 2.6 per cent of GDP.
GST and Demonetization
According to the report the currency exchange exercise and GST implementation slowed down economic activities for a short period to 6.7 per cent GDP in fiscal year 2017-18.
Reforms taken by India
The report indicates that financial sector reforms taken by the government to address NPA and revive bank credit efficiency has been effective so far in cleanup of bank and corporate balance sheets.
Challenges
On domestic side, tax revenue shortfalls due to GST issues, NPA, structural reforms, expected high inflation, vulnerable sovereign-bank nexus, government fiscal deficits and debt remain key macroeconomic challenges for India.
On the external side, risk includes increase in international oil prices, tighter global financial conditions, global trade conflict, and rising regional geopolitical tensions.
Recommendation
The report recommends to consolidate fiscal continuously in order to lower elevated public debt levels, this can be achieved by simplifying and streamlining the GST structure.
While Recognition and addressing the Non-Performing Assets (NPAs) and recapitalisation of Public Sector Banks (PSBs) is a welcome step, more needs to be done for a sound economic atmosphere.
In context to financial sector weaknesses highlighted by several bank frauds, the report recommends : Strong steps needs to be taken by the government to improve governance and operations of PSBs, including more aggressive disinvestment.
Conclusion
The report concludes saying, despite higher global oil prices, tighter global financial conditions and domestic financial vulnerabilities broadly the economy reflects positive outlook.
The report also forecast that by contributing to 15 per cent of the growth in the global economy; India is a source of growth for the global economy for the next few decades as was the case with China few years back.
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