India likely to overtake Germany to become world's fourth largest economy in 2022: IMF

Although domestic and international economists turned wary of India's growth prospects after the demonetisation of high value currency notes in November last year, most of them remain optimistic about the country's economic growth momentum in the medium-to-long term.

As India remains a fastest-growing economy in the world today despite the global vagaries, the International Monetary Fund (IMF) believes the country will become the world's fourth largest economy in 2022. Over the next five years time, India will topple Germany from the current fourth position, while the international organisation predicts UK will be pushed out of the top five global economies.

"Ranking countries and regions on their gross domestic product for 2017 and 2022 based on IMF forecasts, India, growing at 9.9 percent a year in nominal terms, will surpass Germany by 2022 as the world's fourth largest economy, with the UK dropping out of the top five after 2017," The Economic Times citing Bloomberg report said.

Representational image. Reuters

Representational image. Reuters

The road to become the fourth largest economy by 2022 may not be smooth for India, cautions IMF. Among the several challenges, IMF wants India to sort out piling stresses assets in the banking industry, overhaul the tax system and revive lacklustre productivity.

The government will also have to work on generating robust employment opportunities to people, encourage private sector investment which has been dismal, and overcome a significant infrastructure shortfall, the report says.

The note ban exercise implemented by the Modi government in November last year to flush out black money from the system was generally welcomed by the public at large, but raised concerns of a likely impact on the growth.

Several rating agencies, including the Reserve Bank of India, lowered the country's growth estimates.

Fitch Ratings lowered India’s GDP growth forecast for the last fiscal to 6.9 percent from 7.4 percent, Morgan Stanley cut growth estimate to 7.4 percent from 7.7 percent for 2016, and Bank of America Merrill Lynch also cut its growth forecast for India to 7.4 percent for FY17.

The Reserve Bank of India also cut its GDP growth forecast for the previous financial year from 7.6 percent to 7.1 percent, citing the government’s demonetisation exercise that sucked out 86 percent of the currency in circulation, Hindustan Times report said.

Experts also suggest that the government may face near-term challenges in the wake of the implementation of the Goods and Services tax (GST), likely to go on-stream from 1 July,

"While there is little doubt the GST will be beneficial in the long run, economists are concerned about India's banking system and the overall health of its public finances -- both seen as lightning rods for global credit agencies that already rate Indian debt just above "junk'' status," the Bloomberg report added.

India's lingering bad loans woes has been a key concern in the wake of rising corporate defaults, with the finance minister Arun Jaitley also admitting the issue needs an urgent remedy to stem the rising NPA problem.

Reports suggest that bad loans have risen to about 16 percent of total loans. As a result, banks have turned cautious in advancing loans to corporate segment which resulted in credit growth falling to record lows.

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Updated Date: Apr 28, 2017 12:48:48 IST

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