Singapore: The International Monetary Fund has retained its growth forecast for India this year at 7.5 percent, largely driven by private consumption even as weak exports and sluggish credit growth weigh on the economy.
India's growth momentum is expected to be underpinned by private consumption, which has benefited from lower energy prices and higher real incomes, IMF said and called on the policymakers to speed up the structural reform implementation.
In its latest Regional Economic Outlook for Asia and the Pacific, IMF said weak exports and sluggish credit growth (stemming from weaknesses in corporate sector and public sector banks' balance sheets) will weigh on the economy.
"India has benefited from lower oil prices and remains the fastest-growing large economy in the world, with GDP expected to increase by 7.5 percent this year and next," IMF said.
India remains on a strong recovery path, with GDP growth reaching 7.3 percent in 2015, the Fund said adding that "India's growth is projected to strengthen to 7.5 percent in 2016 and 2017."
An incipient recovery of private investment is expected to help broaden the recovery. Moreover, higher levels of public infrastructure investment and government measures to reignite investment projects should help crowd-in private investment, it said.
The report noted that policymakers should capitalise on the favourable economic momentum to speed up the structural reform implementation.
"Additional steps in relaxing long-standing supply bottlenecks, especially in mining and power sectors, as well as further labour market reforms to increase labour market flexibility in the formal sector, are crucial to achieving faster and more inclusive growth," the Fund said.
It further noted that the long-awaited goods and services tax should be implemented, as it would create a single national market, enhance economic efficiency, and boost GDP growth.
According to IMF, growth in Asia and the Pacific is expected to remain strong at 5.3 percent this year and next. However, China and Japan, the two largest economies in Asia, continue to face challenges.
China's growth is forecast to moderate from 6.9 percent in 2015 to 6.5 percent this year and 6.2 percent in 2017, while Japan's growth is expected to continue at 0.5 percent in 2016, before dropping to -0.1 percent in the next year.
"While Asian economies have strong buffers and are relatively well positioned to face the challenges ahead, countries will need to adopt economic policies that shore up growth and reduce their exposure to global and regional risks," it added.