The International Monetary Fund (IMF) has predicted that 2016 and 2017 will have a vigorous growth rate of 7.6%, in its statement made on Tuesday, October 4, 2016. IMF also said that the government must keep on reforming its tax system and eradicate subsidies to increase the investments in infrastructure, healthcare and education.
There been an increase of 0.2% in the projections of IMF since July. According to IMF’s World Economic Outlook, India’s economy has been improving in terms of effective policy actions, stronger external buffers and trade.
Where India's GDP grew at 7.6% in 2015, China had a growth rate of 6.9%. IMF predicted that the growth rate of China in 2016 will be 6.6% and in 2017 will be 6.2%. Whereas the global growth is projected to be 3.1% in 2016 that will rise up to 3.4% in 2017.
IMF has also predicted that there will be a strong growth in developing Asia and other emerging regions. The reason behind the recovery of Indian economy is the reduction in commodity prices, considerable decline in inflation and increased trade.
However, there are few inflationary pressures due to the bottlenecks in the food storage and at the level of the distribution sector. Reforms are needed in these areas to control the consumer price inflation.
Implementation of goods and service tax will have a positive impact on growth and investment, added the IMF. The report also said that the efficiency need to be enhanced in the mining sector and electricity generation must be increased to achieve exponential growth. Apart from this, various labour market reforms also need to be made to increase employment as it plays an important role in growth rate.
Reserve Bank of India’s work to strengthen bank balance sheets by thoroughly recognizing the losses and increasing bank capital buffers have also played an important role in improving the quality of domestic financial intermediation.
As per the report released by the IMF, India has the potential to grow at 8.1% in 2021.