While projecting a more optimistic picture of the global economy, the International Monetary Fund (IMF) on Tuesday slashed India’s growth forecast by 0.5 percentage points to 6.7 per cent in 2017.

“The growth projection for 2017 has been revised down… reflecting still lingering disruptions associated with the currency exchange initiative introduced in November 2016, as well as transition costs related to the launch of the national Goods and Services Tax (GST) in July 2017,” it said in its October 2017 World Economic Outlook.

Earlier, in April, the IMF had pegged India’s GDP growth at 7.2 per cent for 2017.

It has also lowered the growth projection for 2018 to 7.4 per cent from its earlier estimate in April and June of 7.7 per cent, which could once again turn India into the fastest growing economy in the world.

However, the IMF was more optimistic about medium-term growth prospects for India through gains from the new indirect tax levy.

“GST promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8 per cent in the medium term,” it said.

The IMF forecast is in line with a number of recent projections that have scaled down India’s growth prospects for the fiscal due to disruptions from demonetisation and GST, despite the government’s strong defence of the moves.

“The downgrade for this year for India looks like a blip. In general, the state of India’s economy is quite good,” said Maurice Obstfeld, IMF Economic Counsellor and Director of Research.

GDP growth hit a three-year low of 5.7 per cent in the first quarter of the fiscal. The second volume of the Economic Survey also highlighted downside risks to its earlier growth projection of 6.75 per cent to 7.5 per cent for the fiscal.

Recently, the Reserve Bank of India also lowered its growth projection to 6.7 per cent for the fiscal from its earlier estimate of 7.3 per cent.

The economy grew at 7.1 per cent in 2016-17.

But, in some relief to policymakers, the IMF has pegged retail inflation at 3.8 per cent in 2017, which is well within the monetary policy committee’s target of four per cent.

However, in 2018, consumer price index based inflation could rise to 4.9 per cent it said.

Robust global economy The IMF has also estimated an upswing in the global economy and has upped its growth forecast for 2017 and 2018 to 3.6 per cent and 3.7 per cent, respectively, which is 0.1 percentage point higher in both years than in the April and July forecasts.

“The picture now is very different, with accelerating growth in Europe, Japan, China, and the United States. Financial conditions remain buoyant across the world, and financial markets seem to be expecting little turbulence going forward, even as the Federal Reserve continues its monetary normalisation process and the European Central Bank inches up to its own,” it said in the Outlook while warning of challenges such as weak growth in many economies that could still upset this recovery.

“Global economy is recovering at a faster pace,” said Obstfeld, while stressing that this recovery is still incomplete and could be short term.

Policymakers should take action now while the time is good, he said.

The IMF has scaled up its GDP growth forecast for both the US and China by 0.1 percentage point for 2017 to 2.2 per cent and 6.8 per cent respectively.

(The journalist is in Washington D.C. as part of the IMF Journalism Fellowship 2017 to cover the Annual Meetings of the IMF and World Bank.)

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