NEW
DELHI, INDIA, 18 APRIL, 2015 - Lesser
external vulnerabilities plunging crude oil prices and above all Prime Minister
Narendra Modi-led government's reforms drive have led most global institutions
such as IMF Moody's and World Bank to lift their economic growth outlook for
the Indian economy.
India's economy is widely expected to clock above 7% growth rate, with both IMF
and World Bank stressing that the country will surpass China's GDP rate very
soon. "India's economic growth clip this year and next will be better than
previously assumed, overtaking China in 2015 to become the world's fastest
growing major economy and widening the gap further in 2016," IMF and the
World Bank have said in separate forecasts.
Why
are global institutions bullish on the India growth story? We take a look at
five key reasons that are making various agencies positive on the India growth
story
1) Domestic demand: Moody's expects India's economy to
grow at 7.5% this year, helped by interest rate cuts that will buttress private
sector spending. India's economy is on a cyclical upswing and forward-looking
indicators suggest domestic demand is gathering momentum, Moody's Analytics has
said.
"Low
inflation has enabled the Reserve Bank of India to cut interest rates by 50
basis points (half a percentage point), easing pressure on the private sector.
Lower rates as well as the government's infrastructure and disinvestment
programmes should provide a boost to domestic-oriented industries," it
said.
2)
Reforms: Most global institutions have given
thumbs up to Modi government's reforms drive. "India's growth is expected
to strengthen from 7.2 per cent last year to 7.5 per cent this year and next.
Growth will benefit from recent policy reforms, a consequent pickup in
investment, and lower oil prices," IMF's World Economic Outlook said
The strong growth in India has
already made South Asia the fastest growing region in the world, World Bank
noted.
India's expected growth acceleration, World Bank noted in its twice-yearly
South Asia Economic Focus report, is being "driven by business-oriented
reforms and improved investor sentiment" and that growth could reach 8 per
cent in fiscal year 2017-18 on the back of significant acceleration in
investment growth.
"(India) is attempting to shift
from consumption-to-investment-led growth at a time when China is undergoing
the opposite transition," it noted.
Moody's
feels that the government has taken encouraging steps to reduce regulations.
"The government wants more foreign businesses to invest in India, with a
focus on public and private partnerships, it said. "Foreign investment in
India has been weak because of significant red tape and taxes. The government
is taking encouraging steps to reduce these burdensome regulations to entice
more foreign investment," said Moddy’s
3)
Lower crude oil prices : IMF
is of the opinion that in many economies softer oil will help reduce inflation
and lower external vulnerability and open room for structural reforms. IMF sees
crude prices on average nearly 40 per cent lower on a year ago in 2015, rising
12 per cent in 2016. "Lower oil prices will raise real disposable incomes,
particularly among poorer households, and help drive down inflation," IMF
said for India, as it called upon countries to press ahead with subsidy
reforms.
"On the fiscal policy front,
and following the lead of India, Indonesia, and Malaysia, countries should
seize the opportunity provided by the current low fuel and food prices to
further reform or phase out subsidies, which tend to be poorly targeted,"
IMF said.
World
Bank said South Asia was the greatest global beneficiary of cheap oil as all
countries were net importers.
"Together
with favourable food prices, cheaper oil has contributed to a rapid
deceleration of inflation. South Asia went from having the highest inflation
rate among developing regions to having the lowest in barely one year,"
World Bank has noted, while urging countries to take greater advantage of cheap
oil to reform energy pricing.
4)
Lower external vulnerabilities: IMF
has forecast a stable current account deficit, pegged at 1.3 per cent in FY15
and 1.6 per cent in FY16. World Bank, on its part, pegged the current account
deficit at well below 2 per cent in the medium term and noted that India
"has a resilient external position" less than
two
years after the rupee depreciation episode.
Meanwhile,
Crisil is of the opinion that India is better prepared to handle any shock from
a US Federal Reserve hike. Crisil has said, "India's strengthening economy
now makes it better prepared to face the volatility in capital flows arising
from interest rates hikes by the US Federal Reserve."
5)
Better among EMs: In the report titled India's
Economy Is On The Mend, But Corporations Remain Wary, Crisil said the growth
prospects "appear brighter", particularly among emerging markets.
The report noted that India is now
the fastest growing economy among the BRICS nations (Brazil, Russia, India,
China, and South Africa) and is no longer seen as part of the "fragile
five" (Turkey, Indonesia, Brazil, and South Africa)
source - PTI
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