Amid sputtering global conditions, India is set to become the world’s fastest growing major economy by 2016 ahead of populous neighbour China that is battling an industrial deceleration, the International Monetary Fund (IMF) said in its latest forecast on Tuesday.
India is expected to grow at 6.3% this year and 6.5% in 2016 by when it is likely to cross China's projected growth rate, the IMF said in the latest update of its World Economic Outlook.
"I think the reform plans of the new Prime Minister are promising. We are going to have to see the speed of the implementation," said Gian Maria Milesi-Ferretti, deputy director in IMF's Research Department.
Asia's third-largest economy is showing signs of clawing out of sub-5% growth recorded in the last two years, and the raft of measures that new Narenda Modi government has announced has raised hopes that the government will be able to engineer a quick turnaround.
The government has vowed to remove red tape and ease rules, and pledged a non-adversarial governance regime to push companies to make India a manufacturing powerhouse through initiatives such as `Make in India’.
In the first two quarters of the current fiscal (2014-15) India’s gross domestic product (GDP) grew at 5.7% and 5.3%, respectively.
Global growth is forecast to rise moderately, from 3.3% in 2014 to 3.5% in 2015 and 3.7% in 2016, revised down by 0.3% for both years compared to IMF’s earlier forecast made in October.
Recent developments, affecting different countries in different ways, have shaped the global economy in recent months.
New factors supporting growth -- lower oil prices, but also depreciation of euro and yen -- are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries.
Investment growth in China declined in the third quarter of 2014, and leading indicators point to a further slowdown, the IMF said in its report.
“In India, the growth forecast is broadly unchanged, however, as weaker external demand is offset by the boost to the terms of trade from lower oil prices and a pickup in industrial and investment activity after policy reforms,” it said.
Global growth will receive a boost from lower oil prices, which reflect to an important extent higher supply. But this boost is projected to be more than offset by negative factors, including investment weakness as adjustment to diminished expectations about medium-term growth continues in many advanced and emerging market economies, the report said.
Lower oil prices also offer an opportunity to reform energy subsidies and taxes in oil importing nations such as India.
(with PTI inputs from Washington)