THE HINDU | Article | Dealing with the slowdown | JAN 21

The International Monetary Fund has added to the prevailing economic gloom by cutting the global growth forecast. It now expects the world economy to expand by 3.4 per cent in 2016. This is 0.2 percentage points below its forecast of October last year. The revision has come just as Beijing released numbers that showed China posting the slowest growth yet in 25 years. Though it reported a growth of 6.9 per cent in 2015, the year saw turbulence in the Chinese economy, with heavy capital outflows and stock market volatility. 

The IMF has kept its growth forecast for China unchanged at 6.3 per cent in 2016, and the fear is that China’s economic slowdown could have a trigger effect on others. Reading the China factor in tandem with weak commodity prices, the Fund has chosen to pare its global growth forecast. The latest IMF growth numbers no doubt reflect the unfavourable ground conditions around the globe. Yet, they also underscore a sense of urgency in putting in place an action plan that would catalyse and hasten the economic recovery process. Not surprisingly, the IMF has emphasised the need for supportive measures in the near term to assist a recovery.

While ringing the slowdown alarm, the IMF, however, finds India better-placed vis-à-vis other large economies. It has kept its growth forecast for India in 2016-17 unchanged at 7.5 per cent. Coming as it does at a time when global political and business leaders make a beeline for Davos, the IMF’s prediction could be seen to be a shot in the arm for Indian leaders to hard sell the country at the World Economic Forum. At best, it could give India a psychological edge over others. But that alone may not be sufficient to pull India to a higher growth orbit. In an inter-connected environment, global headwinds cannot be wished away. Oftentimes, there have been comparisons between India and China in the global investing community. Managing the ‘China factor’ is very crucial for India to stay its course on the growth path. Containing the spillover effects of volatility in Beijing could, however, prove a big challenge for monetary and fiscal planners in India in the coming days. Given that Indian exports have been contracting month after month, the developments on the Chinese currency front are bound to pose fresh worries for the economy. Though India is relatively better-placed, the economic slowdown is as much a concern for the country as it is for others. Even as the IMF forecast provides India a comparative edge in wooing the global investor community, it is essential for the government to coherently address the growing anxiety among domestic consumers and stem, if not fully reverse, the demand slump. The budget will provide the NDA government an opportunity to announce a plan to mitigate economic distress, especially in the farm sector, and show the political will to push job-creation as a central objective. It’s a task the government must not dodge.