India set to be world’s fastest growing large economy: IMF

The second most populous nation in the world is thought to be the fasting growing too.

India is set to surpass China this year as the world’s fastest growing large economy, according to Christine Lagarde, head of the International Monetary Fund (IMF). And now, following a spate of statistical revisions, data backs this claim up.

The IMF predicts that economic growth in India will reach 7.2 per cent in 2015 and will swell to 7.6 per cent in 2016, outpacing forecasts for growth in China. The IMF also believes the Indian economy will become so massive by 2019 that it will surpass that of Japan and Germany combined.

The Organisation for Economic Cooperation and Development (OECD) also see India’s growth accelerating in 2016, with its forecasts for GDP output rising to eight per cent next year.

Such growth would see the nation return to its heady heights of economic activity from 2004 to 2012, when output averaged around 8.2 per cent per year, easily giving India’s economy the title of fastest growing out of all the OECD countries.

Part of the reason for India’s stellar output is the collapse in oil prices, which has helped to curb the debilitatingly high inflation that gripped the country for so long, allowing the Reserve Bank of India (RBI) to cut interest rates alongside many of its peers.

Revamping the government

A number of other factors also contribute to India’s success, with the more notable being the appointment of former IMF economist Raghuram Rajan to the RBI and the election of prime minister Narendra Modi - who is driving forward a reformation of the government to cut red tape and eliminate corruption.

One of Mr Modi’s successes is the production of his government’s first 12-month budget which aims to clear barriers to investment and update the country’s ailing infrastructure. The budget was applauded to have a vision that extended past a one-year horizon and investors are hoping it will provide a welcome boost to stocks.

India’s leading share index, the Sensex, surged around 30 per cent since Modi’s Bharatiya Janata Party (BJP) took office, and has in turn revived optimism across the nation that it can return to economic prosperity.

Growth boosting initiatives

The pro-business BJP government has made economic growth a top priority and set up a number of initiatives in order to support the industry, such as the new bank announced in the budget.

In a move to support lending to micro, small and medium-sized enterprises, Mr Modi’s budget announced the Micro Units Development Refinance Agency (MUDRA) bank, which is hoped will rekindle growth in the sector.

Further initiatives include BJP’s “Make in India” mega campaign launched in September 2014 which aims to turn India into a global manufacturing hub. Not to mention, such forward looking projects such as Mr Modi’s “Megawatts to Gigawatts” challenge, which aims to up production of solar and wind power to 100 GW and 60 GW, respectively, in just eight years.

It seems that India’s prospects for economic growth will flourish and remain a hot topic in years to come.

BJP’s efforts to reform the government will likely come across some obstacles before it can be called successful, with a complicated tax system and ancient infrastructure just a few of these barriers.

If the BJP government can manage to keep it together and realise the nation’s potential, it could completely alter the global economic landscape.