No, China will not beat India to fastest growing economy tag; here is why

The International Monetary Fund (IMF) says that India will retain its top spot as the world`s fastest growing economy, helped by structural reforms and the fading of the effects of demonetisation and the new goods and services tax system. The World Economic Outlook report released on Tuesday, said that India`s growth projections of 7.4 percent for this year and 7.8 percent for next year remained unchanged from the earlier estimates.

The report kept the global growth rate projections at 3.9 percent for this year and the next that was made in January. "A projected increase in India`s growth provide some offset to China`s gradual slowdown and emerging Europe`s return to its lower-trend growth rate," the report said.

China`s growth rate is projected to be be 6.6 percent this year and slide to 6.4 percent next year.

Meanwhile, IMF Research Director Maurice Obstfeld cautioned that a trade war could put global growth at risk.

He told reporters in Washington that a fight over trade will not help anyone and there will be no winners, even if some may see some short-term benefits.

The US sparked off a trade war, primarily aimed at China, by raising some tariffs and Beijing retaliated with its own set of counter tariffs.

For India, the report cautioned that corporate debts and banking sector credit quality are a drag on investments.

The 2017 recapitalisation plan for major public sector banks will "improve the banking sector`s ability to support growth," the report said.

But it added that the "recapitalisation should be part of a broader package of financial reforms to improve the governance of public sector banks, and banks` debt recovery mechanisms should be further enhanced".

Overall in India, growth was "lifted by strong private consumption as well as fading transitory effects of the currency exchange initiative and implementation of the national goods and services tax," the report said.

"Over the medium term, growth is expected to gradually rise with continued implementation of structural reforms that raise productivity and incentivise private investment," it added.