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IMF says India growing slower than China. How worried should India be?

business Updated: Jan 17, 2017 15:29 IST
Suchetana Ray

The logo of the International Monetary Fund at an event in Tokyo.(Reuters)

India has lost the “fastest growing major economy” tag to China in 2016-17 with the International Monetary Fund (IMF) lowering India’s growth forecast for the year by a full percentage point to 6.6% while it raised the forecast for China’s economic growth this year by 0.1 percentage points to 6.7%.

The India downgrade is attributed to the disruption caused by the government’s demonetisation drive.

In its update to the World Economic Outlook, IMF said India is likely to grow 6.6% in 2016-17, against its earlier estimate of 7.6%. IMF said the Chinese economy grew by 6.7% in 2016 as against the previously projected 6.6%.

Economists brush aside any concerns for India, as far as the IMF projections are concerned, as they point towards the forecast for 2017-2018. The Fund expects India to grow at 7.2%, against its earlier estimate of 7.6%. On the other hand, China’s growth forecast in 2017 was raised to 6.5% from 6.2% projected in October on expectation of continued policy stimulus.

“We will get to know the real impact of demonetisation on the GDP once Central Statistical Organisation releases the final data next month. But a slight blip or competition with China by a decimal point does not scare investors,” said an economic advisor working with the finance ministry, who did not wish to be named.

Read | State Bank of India pegs economy growth at 6.1%, much lower than govt estimates

But there could be cause for worry on account of a global survey that puts India in the sixth place when it comes to enthusiasm to invest here, a notch below last year.

According to the annual global CEO survey by PwC, as reported by news agencies, the most favoured markets are the US, voted by 43% of respondents, followed by China (33%).

Others in the pecking order are Germany (17%), UK (15%), Japan (8%) and India (7%).

Last year, India was among the top five most promising markets globally.

News reports quoted the survey saying that “Over time, CEOs have become less enthusiastic about India perhaps because structural reforms have been slow to come (and there have been recent short-term difficulties with its rupee conversion programme).”

Read | India will remain one of the fastest growing economies: Moody’s

“This survey should be a matter of concern for Indian policymakers,” said Rajiv Kumar, senior fellow at the Centre for Policy Research. “Policy measures are needed to improve the business environment while the government should boost public spending in infrastructure and housing to draw out private investment,” he added.

India, which has recorded some of the world’s strongest recent growth, is experiencing sluggish consumption following the government’s November 8 decision to scrap high-value currency notes. Citing the blow to the cash-reliant economy, several rating agencies have revised their growth projections for India in 2016.