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India To Grow 7% In 2020 As Bottlenecks Clear Up: IMF Chief Economist Gita Gopinath

India To Grow 7% In 2020 As Bottlenecks Clear Up: IMF Chief Economist Gita Gopinath

International Monetary Fund (IMF) Chief Economist Gita Gopinath said on Tuesday that economic growth in India is projected to recover to 7 per cent in 2020 from 6.1 per cent this year. There has been a negative impact on growth due to “financial vulnerabilities in non-bank financial sector” which has impacted borrowing by consumers as well as small and medium enterprises, said Gita Gopinath said, after the US-based institution lowered its growth forecast for India to 6.1 per cent in 2019 (from 7.0 per cent) and 7.0 in the next year (from 7.2 per cent).

The growth forecast for 2020 is based “on the premise that these particular bottlenecks will clear up”, Ms Gopinath said.

The collapse of IL&FS – one of India’s biggest non-banking finance companies – and a Rs. 13,000-crore fraud at state-run Punjab National Bank has rocked the country’s financial sector, which is struggling against more than Rs. 10 lakh crore of non-performing assets or bad loans.

The government has announced a mega consolidation plan for state-run banks, in a bid to strengthen the financial system and push economic growth.

“On the fiscal side for India there have been some recent measures including the corporate tax cut,” Ms Gopinath said.

The government has taken a slew of measures since August 23 to pull the economy out of a six-year low growth rate. Key measures include a cut of almost 10 percentage points in the corporate tax rates which would cost the government Rs. 1.45 lakh crore.

“While India has not yet said how it would offset the revenue shortfall from this measure, the revenue projections look optimistic,” the IMF chief economist said. “It is important for India to keep the fiscal deficit in check.”

On global economy, Ms Gopinath said: “The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods.”