India’s GDP growth next year to be better than IMF projections: CEA Nageswaran

Chief Economic Adviser V Anantha Nageswaran on Monday said India is expected to clock better growth than IMF’s projections next year aided by enhanced capital formation. Recently, the International Monetary Fund (IMF) projected 6.8 per cent real growth for this year and 6.1 per cent for next year for India. 

The growth rate for this year for India has been revised downward by 0.6 percentage points relative to the IMF’s June 2022 forecast following a weaker output in the second quarter and subdued external demand. The forecast for the next fiscal year remains unaltered at 6.1 per cent. 

“I think in fact, the growth rates for the coming years may be slightly more, slightly better than what these numbers are, because I think there is a possibility that India’s capital formation cycle will do better after one decade of retrenchment,” he said. 

India’s public digital infrastructure has probably crossed an inflection point and that will also be contributing to both formalisation of the economy and therefore higher growth, he said at a panel discussion organised by National Council of Applied Economic Research (NCAER) and the International Monetary Fund (IMF). 

So, he said, maybe there could be 0.5-0.8 per cent addition to the 6 per cent baseline numbers. He also said that fiscal policy and monetary policy are usually synchronised and counterbalance each other. On high debt-to-GDP ratio, he said, sustainability is not a concern and it may reduce with asset monetisation. India can use asset monetisation proceeds to whittle down stock of debt and that will help improve the credit rating, he said. 

“If we improve our credit rating and bring down the cost of capital, that will be the best stimulus we can provide to the economy via fiscal policy,” he said. Fiscal consolidation is needed in the Asia Pacific region to bring inflation down, he said. He also emphasised the need to address learning losses caused by the Covid pandemic. 

Participating in the panel discussion, Rakesh Mohan, former RBI Deputy Governor, and president, Centre for Social and Economic Progress (CSEP), cautioned that India is on the right track in reducing debt levels but it should not be complacent about financial repression. Mohan emphasised the need for keeping inflation expectations anchored. 

During his presentation, Krishna Srinivasan, director of the IMF’s Asia Pacific Department, said large medium-term output losses is averaging 9 per cent for the region from pandemic scarring. “While there is no panacea for productivity losses due to pandemic scarring, digital technologies can increase efficiency, deepen financial inclusion, and open new markets,” Srinivasan said.