IMF sees India’s economic growth at above 8% on back of GST, reforms

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The latest Economic Survey has advocated the creation of a public sector asset reconstruction agency, given that private-sector ARCs haven’t been very successful. The government is, however, treading cautiously on this advice. (Reuters)

Continued progress on reforms and adoption of the goods and services tax (GST) could raise India’s medium-term economic growth to above 8%, the International Monetary Fund said on Wednesday. On January 16, the IMF had cut India’s gross domestic product (GDP) growth forecast by 100 basis points (bps) to 6.6% in FY17 and by 40 bps to 7.2% in FY18, citing a consumption slump after the demonetisation of high-value notes. After consultations with Indian policymakers recently, the executive board of the fund has called for action to quickly restore availability of cash to avoid further payment disruptions, and encouraged prudent monitoring of the potential side-effects of the initiative on financial stability and growth.

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The government’s demonetisation decision hurt consumption, especially in cash-dependant sectors. The pre-Budget Economic Survey on January 31 said GDP growth may slow to 6.5% in FY17, mirroring pangs of demonetisation. But the economy will likely recover in the next fiscal and could grow between 6.75% and 7.5%, it said. “Action is needed to quickly restore cash in circulation and avoid payment disruptions. Looking beyond this immediate challenge, policies should aim to reduce banking and corporate vulnerabilities, durably lower sticky inflation expectations, continue fiscal consolidation, and maintain the strong reform effort,” the IMF executive board said.

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