GDP growth slowdown shocked IMF

The International Monetary Authority sees monetary policy stimulus, corporate income tax cuts and addressing of lingering weaknesses in the financial sector helping Indian economy rebound to 7% in the next fiscal year (2020).

“We see Indian economy rebounding from our projected 6.1% growth this fiscal year to up something like 7% next fiscal year,” Jonathan Ostry, Deputy Director, Asia Pacific Department at the IMF, said in Singapore on 23 Oct 2019.

“We see the factors that will support growth as including monetary policy stimulus that is working its way through the pipeline.

“We also see the tax cuts that were recently passed, we see progress in addressing lingering weaknesses in the financial sector and we see also measures to support growth sectors and relief growth stress,” he told a press conference.

“All of these factors we see as underpinning growth in the near term,” Ostry added at the release of IMF regional economic outlook “Asia and Pacific – Caught in Prolonged Uncertainty: Challenges and Opportunities for Asia”.

Touching on the slowdown of Indian economy in recent quarters, he said “indeed (it) took many of us by surprise including the IMF.

“There wasn’t a single cause for the slowdown … there were many different causes at work including corporate and regulatory environmental uncertainties, the stresses in the non-bank financial sector, (and) stresses in the rural sector among others.”

Asked about the Regional Comprehensive Economic Partnership (RECP), which India is reportedly cautious to sign as the multi-lateral trade pact negotiations are widely expected to be concluded in the coming months, he underlined the importance of having services included in the free trade partnership agreement.

“We think that essential to sustain growth in South Asia will be much greater attention to integration type issues. This needs to include not only goods trade but importantly services trade which could provide a substantial engine of growth for India and other South Asian economies going forward,” said Ostry.

There is a need really to take steps to invigorate the deliberation process and structural reforms more generally because India has potential enormous demographic dividend over the next couple of decades through which something like 150 million people will be entering the workforce, he pointed out.

Elaborating, he said India needs to revive rewarding employment opportunities for those entrances to the labour force – and for this all kind of structural reforms importantly centered on trade will be essential.

“I would only underscore the importance of all countries in South Asia pushing ahead with a broad-based regional integration involving not just goods but what can be provider of another way of productivity enhancing growth which includes services,” stressed Ostry.

“We consider services is important source of growth and productivity enhancing investments in the period ahead,” he underlined.

India’s success in the service sector has been especially remarkable as its share of the world’s information and communication technologies service exports almost tripled in a decade, from 6.3% in 2000 to 17.8% in 2010, recording the largest increase globally for the sector, according to the IMF report.

“This performance was strongly associated with an emphasis on tertiary education and a low degree of regulation of the sector,” said the report that was released on Wednesday.

Asked for comments about the reported relocation of US companies out of China amidst the trade tension with the United States, Ostry said a key concern in this trade tension has been the undermining of the global supply chains and global technology chains.

“One of the things we have been looking at as part of our surveillance is whether there is any hard data that support the idea that these value chains are being disrupted.

“One of the things that we have looked at is the relationship between export sophistication and the drop-in exports. We do see some co-relations between those two variables suggesting that indeed higher technologies and higher tech exports have succumbed more to the trade tension which might suggest the disruption in the global value chain and global technology chain,” he said.

He said a survey has also noted some evidence that firms are indeed rethinking their plans.

“But thinking about them and actually implementing a change in location are two separate things,” he felt. fiinews.com