IMF predicts India will grow faster than China in 2018 to regain the fastest-growing economy tag

• IMF has revised down its earlier projection of 7.4% growth to 7.3% given the recent increase in global oil prices and tightening global financial conditions.
• China’s growth rate also lowered to 6.6% in 2018 and 6.2% in 2019.
• IMF warns rising fuel prices and weak rupee expected to increase inflation to 4.7%.

The International Monetary Fund (IMF) has said India should grow at 7.3% in 2018-2019, up from 6.7% last year but lower than its earlier projection earlier this year.

In April, IMF had projected India’s growth rate to be at 7.4%, which it has now revised down given the recent increase in global oil prices and tightening global financial conditions, IMF has said in its World Economic Outlook report.

For 2019-20, India’s growth is projected to be at about 7.4%, on the back of the rebound from the shocks of demonetisation and the goods and services tax (GST), and improving private consumption and investment climate.

In comparison, China is expected to grow at 6.6% in 2018 and 6.2% in 2019. China’s growth projections have been lowered in part due to the impact of US tariffs hitting Chinese exports and slowing external demand growth and financial regulatory tightening, according to the report. China was the fastest growing economy in the world in 2017.

According to India’s central bank the Reserve Bank of India, in 2018-19, India’s GDP is expected to grow at 7.4%, a figure the Indian government said it would exceed. IMF has said that India’s medium-term growth prospects are strong at 7.75% attributable to structural reforms.

Inflation warning

However, the recent hike in oil prices and weakening rupee is expected to affect India’s inflation numbers, according to IMF, which has called for a tighter monetary policy.

IMF has warned that India’s inflation rate is expected to increase to 4.7% in 2018-19 compared to 4.5% in 2016-17 because of rising fuel prices and accelerating demand.

Comparing India to trends in Argentina, IMF has urged India to “re-anchor expectations” where inflation continues to be high and increasing higher due to a sharp currency depreciation.

Last week, RBI’s monetary policy committee (MPC) kept interest rates unchanged at 6.5% partly on expectation that inflation was manageable, preferring instead a “calibrated tightening of monetary policy.”