India loses fastest growing economy rank; IMF slashes 2017 growth rate by 0.5 % to 6.7%

India has lost its rank as the world`s fastest growing major economy in the International Monetary Fund`s tally after it slashed India`s growth projection for 2017 by 0.5% to 6.7% on Tuesday.

China edged slightly ahead to be the growth champion with a projected growth rate of 6.8%, according to the latest World Economic Outlook report.

But according to the report, it is only a temporary setback for India, and it projected India to regain the top spot next year with a 7.4% growth rate for the gross domestic product (GDP) even though that estimate was also down from the 7.7% made in July.

IMF`s 6.7% 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%.

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

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% in the medium term".

Globally, the economic picture has brightened a bit with the world growth for this year projected at 3.6%, up from last year`s 3.2%. For next year it was projected at 3.7%, 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."

On the plus side for India, the IMF raised last year`s growth rate by 0.3% to 7.1% from the 6.8% 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% from the 7.3% estimated earlier to 7.5%.

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% for this year and 7.9% for the next year made by the UNDESA in May to Asian Development Bank`s projection last month of 7% for this year and 7.4 for next year.

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% before raising to 7.5% next year.

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