India loses fastest growing economy rank; growth rate slashed by 0.5%

United Nations: India has lost its rank as the world's fastest growing major economy in the International Monetary Fund's tally. The IMF has slashed India's growth projection for 2017 by 0.5 percent to 6.7 percent.

China edged slightly ahead to be the growth champion with a projected growth rate of 6.8 percent, according to the latest World Economic Outlook report, but the report also displayed that it was only a temporary setback for India.

The IMF report projected India to regain the top spot next year with a 7.4 percent growth rate for the gross domestic product (GDP) even though that estimate was also down from the 7.7 percent made in July.

IMF's 6.7 percent growth rate projection is at the low end of the spectrum of estimates made by it and four other international organisations with the UN Department of Economic and Social Affairs (UNDESA) putting it at 7.3 percent.

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The IMF's previous projections for 2017 made in April and July had put India's economic growth rate at 7.2 percent.

Explaining the cut, the report said that India's growth momentum slowed because of "the lingering impact" of last year's demonetisation "as well as uncertainty related to the midyear introduction of the country-wide Goods and Services Tax (GST)."

Although the report blamed the GST as a factor in lowering the growth projection for this year, the IMF said that it "is among several key structural reforms under implementation that are expected to help push growth above 8 percent in the medium term".

Globally, the economic picture has brightened a bit with the world growth for this year projected at 3.6 percent, up from last year's 3.2 percent. For next year it was projected at 3.7 percent, according to the report.

Releasing the report in Washington, IMF Research Director Maurice Obstfeld said: "The global recovery is continuing, and at a faster pace. The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia."

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On the plus side for India, the IMF raised last year's growth rate by 0.3 percent to 7.1 percent from the 6.8 percent it had projected in April citing "strong government spending and data revisions".

It also raised the growth rate for 2014 and 2015 by 0.2 percent from the 7.3 percent estimated earlier to 7.5 percent.

The IMF recommended that "simplifying and easing labor market regulations and land acquisition procedures" would help India improve the business climate.

Another recommendation was to facilitate more women to join the labour force because "gender gaps in labour force participation not only hold back potential output but also limit women's economic and social opportunities, harming inclusiveness".

There is a wide range in the projections by different agencies, ranging from the 7.3 percent for this year and 7.9 percent for the next year made by the UNDESA in May to Asian Development Bank's projection last month of 7 percent for this year and 7.4 for next year.

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Another UN agency, the Economic and Social Council for Asia and the Pacific (ESCAP), also in May, expected this year's growth rate to be 7.1 percent before raising to 7.5 percent next year.

The World Bank's growth projection made in June was 7.2 percent for this year and 7.5 percent next year.

--Inputs from IANS