GST to help push India's growth above 8%: IMF

The Goods and Service Tax (GST) is expected to push India's growth in the medium-term to over 8%, said the International Monetary Fund (IMF). This puts a much brighter outlook for the Indian economy.

IMF's Deputy Managing Director, Tao Zhang said that India has made significant progress on important economic reforms. He singled out the 12-digit unique identity system Aadhaar as one of the instruments for targeting subsidies that could help, according to a PTI report.

It further said that India which is already the fastest growing emerging market economy in the region, still has to get firm grip on its banking sector being pulled down by bad loans, and push labor reforms.

The IMF said that the GST will replace the myriad local levies with a single tax, would enhance production and the movement of goods and services across Indian states. This would contribute to putting the economy into a faster growth trajectory.

Zhang further said that the IMF is extremely impressed by the work being done in India, in terms of the reforms being passed by the government. “The government has made significant progress on important economic reforms that will support strong and sustainable growth going forward,” Zhang told PTI. This he said would pay off in terms of higher growth in the future.

The IMF estimates of growth rate of various countries could suggest that India will overtake Germany in 2022 as the world's fourth-largest economy and may push Britain out of the top five largest economies.

The IMF estimates of India's growth are lower than the government's estimates. While IMF estimate's India's growth is estimated to be to 6.8% in 2017 and 7.2% in 2018, Finance Minister Arun Jaitley recently said that the economy was expected to grow by 7.2% in 2017 and 7.7% in 2018.

Zhang however said that the Prime Minister Narendra Modi's decision to suck out 86% of the total currency had slowed down economic activity. He added that there were initial signs of recovery as the currency replacement had been progressing well.

The IMF however said that India has to fix it problem with the banking sector if it has to deliver on its potential. Zhang also pushed for labour market reforms that had been debated by the previous UPA government for 5 years but had to be shelved dropped due to stiff resistance from political parties.