India has world’s fastest-growing economy, says IMF

India is poised to remain the fastest-growing economy in the world, with the International Monetary Fund (IMF) projecting a growth rate of 7% for the financial year 2024-25.

The IMF’s Asia Pacific Department Director, Krishna Srinivasan, said that India’s growth trajectory will be supported by positive macroeconomic fundamentals, recovery in rural consumption and easing inflation, which is expected to decline to 4.4% during this period.

Speaking to news agency PTI, he also highlighted three main focus areas for India to support further growth outlook – jobs, trade barriers and infrastructure.

“Despite elections, the fiscal consolidation remains on track. The reserve position is pretty good. Macro fundamentals, generally speaking, for India are good,” he said.

Srinivasan said that, in the context of jobs creation, focusing on implementation of labour codes, which were approved in 2019-2020, is important. “They will allow the labour markets to be flexible while giving social protection to workers,” he said.

He added that to be competitive India should consider removing some of the trade restrictions that are in place at present. “When you liberalise trade, you allow the productive firms to survive,” he said, explaining that this boosts competitiveness and that by itself can create jobs.

Srinivasan said it was important that the government continues to reform and upgrade the country’s infrastructure. He noted that development of both physical and digital infrastructure was a key achievement, but said the focus also needs to be on agriculture and land reforms. “You have to think in terms of strengthening education and skilling,” he emphasised. Improving the business environment, labour force participation of women and youth unemployment are some other key concerns.

Meanwhile, the IMF said that the global war against inflation has largely been won – and at surprisingly little cost to economic growth. In its latest assessment of the global economy, the IMF predicts that worldwide inflation will fall from 6.7% last year to 5.8% this year and to 4.3% in 2025. It estimates that inflation will fall even faster in the world’s wealthy countries, from 4.6% last year to 2.6% this year and 2% – the target range for most major central banks – in 2025.

“The battle against inflation is almost won,″ IMF chief economist Pierre-Olivier Gourinchas said in a press conference. “In most countries, inflation is hovering close to central bank targets.″

He said that inflation had accelerated when the world economy recovered with unexpected speed from the Covid-19 recession, leaving factories, freight yards, ports and businesses overwhelmed with customer orders and creating shortages, delays and higher prices. The high borrowing rates engineered by major central banks, along with the end of supply chain logjams, brought inflation dramatically down from the four-decade highs it hit in mid-2022.

“The decline in inflation without a global recession is a major achievement,” Gourinchas added.

Survey finds increased confidence among Indian businesses

India’s economic growth has held up well despite global challenges, according to the quarterly CII Business Confidence Index, which jumped to a two-quarter high of 68.2 in the second quarter of the current financial year (July-September). This was above the figure of 67.3 recorded in the previous quarter, beating the 67.1 figure recorded for the corresponding quarter in 2023.

The Index is a standardised confidence indicator providing an indication of future developments in business, based upon opinion surveys on developments in production, orders and stocks of finished goods in the manufacturing sector. It is measured on a scale of 0–100.

In a press release accompanying the Index, it said that industry “has responded positively on the availability of employment opportunities across sectors”. It said almost half of the respondents anticipate an improvement in the hiring situation in their companies going forward.

The survey respondents cited factors such as improvement in consumption, especially rural demand, continued government emphasis on reform, and increasing private investment as the key drivers of growth in the current financial year.

The uptick in private investment is attributed to an improvement in domestic demand by survey respondents.

However, respondents to the survey said protracted geopolitical tensions, spike in global commodity prices and slowing external demand were the top three causes for concern.