IMF pins hope on India for global economic revival: Report

The International Monetary Fund (IMF) has placed its expectations for global economic resuscitation on India, which continues to be a relative “bright spot” in the global economy, the Asian Lite reported.

The IMF released its much-anticipated World Economic Outlook report ‘A Rocky Recovery’ a few days ago, predicting that India will expand 5.9 percent this year.

 “We realised that 2020-2021 has been actually a lot better than we thought,” IMF economist Daniel Leigh said at a press briefing, responding to a question from the media query.

Global output growth is projected by the IMF to slow to 2.8 per cent in 2023 (calendar year), picking up to 3 per cent in 2024.

India continues to be a relative “bright spot” in the global economy, accounting for 15% of global growth in 2023, according to International Monetary Fund (IMF) Managing Director Kristalina Georgieva.

While digitisation has lifted the world’s fifth-largest economy from pandemic lows, Asian Lite reports that prudent fiscal policy and significant financing for capital investments provided in the next year’s Budget will help sustain the growth momentum.

“India’s performance has been quite impressive. For this year, we expect India to retain a high growth rate, 6.8 per cent for the year that ends in March. For FY 2023/24 (April 2023 to March 2024) we project 6.1 per cent, a bit of slow down like the rest of the world economy, but way above the global average. And in that way, India is providing about 15 per cent of global growth in 2023,” Georgieva said recently.

The study relied on a macroeconomic model (PP) based on Platzer and Peruffo (2022) to compare the quantitative influence of various forces.

In the sense that it abstracts from the nominal and financial frictions that normally underpin cyclical oscillations, PP is a “real” macroeconomic model. Similarly, for tractability, uncertainty is assumed away, according to Asian Lite.

While these are reasonable assumptions for studying medium- to long-term trends in real interest rates, the model is inadequate for analysing the impact of the previously discussed financial drivers.

Nonetheless, PP allows foreign developments to influence domestic interest rates via their impact on net international capital flows. PP is calibrated to represent eight main global economies: the US, Japan, Germany, the UK, France, China, India, and Brazil.

These are the five greatest advanced economies, as well as the three major emerging market and developing nations, accounting for around 70% of global GDP.

The country-specific calibrations are informed by demographic dynamics, the age-earning profile, the percentage of income flowing to the richest 10%, productivity trends, the retirement age, average pension replacement rates, labour share, government debt, and public expenditure, according to Asian Lite.

The real GDP growth rates in India are estimated using national accounts: from 1998 to 2011, with the basis year 2004-05, and then with the base year 2011-12.

The World Economic Forum article ‘A Rocky Recovery’ highlighted that the predictions are based on publicly accessible information on the government’s fiscal plans, with adjustments for IMF staff assumptions. Subnational statistics are merged with a one-year lag; hence, general government data are completed well after central government data.

According to Asian Lite, the IMF and Indian presentations diverge, particularly in terms of disinvestment and license-auction proceeds, net vs gross income recording in certain minor categories, and some public sector credit.