Growth Forecast Current Affairs

IMF forecasts 7.3% GDP growth for India in 2018-19 and 7.5% in 2019-20

The International Monetary Fund (IMF) in its report has projected India’s GDP growth 7.3% in the 2018-19 fiscal and 7.5% in 2019-2020 on strengthening of investment and robust private consumption. India’s near-term macroeconomic outlook for India is broadly favourable.

Key Highlights of IMF Report

Headline inflation: It is projected to rise to 5.2% in fiscal year 2018/19, as demand conditions tighten, along with recent depreciation of rupee and higher oil prices, housing rent allowances and agricultural minimum support prices. But it has averaged 3.6% in fiscal year 2017/18 which 17-year low, reflecting low food prices on return to normal monsoon rainfall, agriculture sector reforms, subdued domestic demand and currency appreciation.

Current account deficit (CAD): It is projected to widen further to 2.6% of GDP on rising oil prices and strong demand for imports. CAD will be offset by slight increase in remittances

Financial sector reforms: They have been undertaken to address twin balance sheet problems, as well as to revive bank credit and enhance efficiency of credit provision by accelerating cleanup of bank and corporate balance sheets. India’s stability-oriented macro-economic policies and progress on structural reforms are continuing to bear fruit.

Way Forward: Continued fiscal consolidation is needed for India to lower elevated public debt levels, supported by simplifying and streamlining GST structure. Further, while important steps have been taken to improve recognition of Non-Performing Assets (NPAs) and recapitalise Public Sector Banks (PSBs), more needs to be done. Persistently-high household inflation expectations and large general government fiscal deficits and debt are still key macroeconomic challenges.

PSB Reforms: Large fraud in PSBs highlights financial sector weaknesses and underscores need for government to take further steps to improve PSBs’ governance and operations, including by considering more aggressive disinvestment.

Economic risks: Domestic economic risks are tilted to downside and external side risks include further increase in international oil prices, tighter global financial conditions, retreat from cross-border integration including spillover risks from global trade conflict and rising regional geopolitical tensions. Domestic risks pertain to tax revenue shortfalls related to continued GST implementation issues and delays in addressing twin balance sheet problems and other structural reforms.

Month: Categories: Business & Economy Current Affairs 2018

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RBI switches back to GDP model from GVA model to measure economy

The Reserve Bank of India switched back to gross domestic product (GDP) model from the gross value added (GVA) methodology to provide its estimate of economic activity in the country. The switch to GDP is mainly to conform to international standards and global best practices.

Key Facts

The GVA methodology gives picture of state of economic activity from producers’ side or supply side whereas the GDP model gives picture from consumers’ side or demand perspective. Globally, performance of most economies is gauged in terms of GDP model. This is also approach followed by multilateral institutions, international analysts and investors because it facilitates easy cross-country comparisons.

Background

Government had started analysing growth estimates using GVA methodology from January 2015 and had also changed the base year to 2018 from January 2018. Even the Central Statistical Office (CSO) has started using GDP model as supply-side measure of economic activity as main measure of economic activities since January 15, 2018.

Month: Categories: Business & Economy Current Affairs 2018

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