Indian economy continues to perform well in FY24, remain one of the fastest growing in world: IMF

Surpassing the global uncertainty and headwinds, Indian economy will continue to perform well and maintain its position of being one of the fastest growing economy in the world, said a top official of the International Monetary Fund on Tuesday. The statement has come at a time when the IMF has lowered its projection growth for India during 2023-24 to 5.9 per cent from 6.1 per cent earlier.

"The Indian economy continues to perform well and remains the fastest growing Asian economy, and one of the fastest growing in the world," Anne-Marie Gulde-Wolf, Deputy Director for Asia and Pacific Department, IMF, told PTI in an interview.

She also added that the IMF has downgraded the projection of India's growth to incorporate the findings of the recent data. The downgrading of the data was done on th back of an expected slowdown in consumption growth.

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"Indeed, we have seen evidence of this deceleration in consumption growth in the data for CY 2022:Q4, as the large so-called 'revenge consumption' boom earlier in the year subsided," Gulde-Wolf said in response to a question.

She also hinted at investment being the key driver of growth as evidenced by double-digit credit growth, strong PMIs and an ambitious budgeted government spending programme.

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Infrastructure investment will showcase a large impact on medium-term. That's why it will remain an important policy priority. Other than this, net exports, is also expected to perform well in the coming time. Specifically, exports of services will perform very strongly.

"Risks are tilted to the downside and mostly stem from external factors, including stronger-than-expected contraction of external demand in partner countries, tighter global financial conditions, and stronger-than-expected spillovers from the recent global financial market volatility," Gulde-Wolf said.

India-China can act as key economic engines

Expressing confidence on the two South-Asian nations of being drivers of growth in the future, Gulde-Wolf said that India and China can act as key economic engines. They are capable of driving global growth through consumption, investment and trade.

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The neighbouring nations are becoming the centre of technological innovation, fostering global advancements in sectors like information technology, renewable energy, and AI, she said.

India and China can help avoid economic fragmentation. “The IMF has highlighted the potential cost and downside risks of economic fragmentation. India and China play an important role in the international arena, including as key members of the G20 and can play a constructive role in maintaining international economic cooperation,” she added.

As developing economies, India and China can also strengthen South-South cooperation and promote economic development and stability. She added that the IMF expects China's growth to accelerate to 5.2 per cent in 2023, from 3.0 in 2022. High growth of China, will also generate positive spillovers around the world.

China's 2023 growth rebound will be led by private consumption

Instead of infrastructure investment, China's growth trajectory will be improved by the contribution of private consumption. IMF expects spillovers from China to the rest of Asia are estimated to be larger than from other growth drivers. But the near term impact on the rest of Asia will depend on the countries.

Inflation to be a major challenge for Asian economies

Highlighting on major challenges to be faced by the Asian countries in the near future, Golde-Wolf said that Asian economies will face major challenge from inflation. Inflation, despite being in a better condition than the rest of the world, has remained above central banks' targets

"In particular, we have seen core inflation remain sticky, which signals that central bank interest rates may have to stay high for longer," she said.

She also added that Asian banks can face the heat of successive rate hikes by the central banks of the US and Europe. In some Asian countries, corporate and household debt levels have also increased significantly, that have added to the woes of the government.

Government needs to bet on 'growth-friendly' efforts to increase its revenues based on efficient tax reforms, and more efficient spending, said Gulde-Wolf.

Ageing population will also be a major concern for many Asian countries where their GDP growth will likely slow over the medium term. Policies needed to harness the demographic dividend include a range of measures, including, in particular, education, health, and structural measures to absorb the growing labour force, she said.

(With inputs from PTI)