Regional Economic Outlook for Asia And Pacific Report: IMF | 17 May 2024

Source: IMF

Why in News?

Recently, the International Monetary Fund (IMF) has released its Regional Economic Outlook for Asia And Pacific Report April 2024, which stated that India was the source of repeated positive growth surprises, supported by resilient domestic demand. Also, Public Investment is a significant factor in driving India’s economy.

What are the Key Highlights of the Report?

• Growth in Asia-Pacific: Asia-Pacific's growth in late 2023 surpassed expectations at 5.0%, with varying inflation rates across economies.
  • Projections for 2024 suggest a slight growth slowdown to 4.5%, balancing near-term risks.
  • In emerging markets, growth was supported primarily by strong private demand.

• India’s Growth Forecasts: It raised India’s growth forecast for the financial year 2024-25 to 6.8% from 6.5% earlier and retained the growth forecast for 2025-26 at 6.5%.
  • It stated that India and the Philippines have been the source of repeated positive growth surprises, supported by resilient domestic demand.
  • In China and, especially, India, public investment made an important contribution.

• Forecast for China: The Chinese Economy is expected to grow at the rate of 4.6% in 2024, slower from 5.2% in 2023 and expected to remain at 4.1% in 2025.
  • The IMF sees China as a source of both upside and downside risks.
    • Policies addressing stresses in the property sector and boosting domestic demand will benefit China and the region, as this sector is under stress due to concerns about a potential housing bubble (rapid rise in prices) and high levels of debt.
    • However, sectoral policies leading to excess capacity in certain industries, such as steel and aluminium, will harm China and the region.
• Inflation Forecast: The IMF stated that inflation is currently at or near the desired level in emerging markets, but there are different factors contributing to inflation in the future.
  • Core inflation is expected to stay low, but some economies may see a decrease in headline inflation due to lower energy prices.
  • However, in countries like India, food prices, particularly for rice, can increase headline inflation.
    • Inflation, as defined by the International Monetary Fund, is the rate of increase in prices over a given period, encompassing a broad measure of overall price increases or for specific goods and services.
      • Headline Inflation: It considers the price changes of all the goods and services. This basket includes everything from food and energy to clothing, rent, and entertainment.
      • Core Inflation: This is change in price of goods and services excluding food and energy sectors(as they are volatile).
      • Core Inflation= Headline Inflation- Food and Fuel Items
• Geoeconomic Fragmentation: IMF has highlighted Geoeconomic fragmentation as a significant risk.
  • Geoeconomic fragmentation refers to the risk of increasing economic and trade tensions between countries, which can have negative impacts on global economic growth and stability.
  • Global disputes increase the trade risks, as shown by ships being redirected around Africa to bypass the Red Sea, leading to higher shipping expenses.
    • IMF suggested that policymakers should be cautious to not aggravate trade frictions themselves.

How Public Investment is Key to Growth of India?

• About: Public investment refers to the allocation of government funds towards critical sectors such as infrastructure, education, healthcare, and technology.
  • It plays a pivotal role in shaping a nation’s economic trajectory.
• Public Sector as Key to India’s Growth:
  • Infrastructure Development: Public investment is vital for building and maintaining critical infrastructure, such as roads, highways, railways, ports, airports, and power plants, which are essential for economic growth and productivity.
    • This sector will require estimated investments of USD4.5 trillion by 2030, which underscores the need for increased public investment in this sector.
  • Job Creation and Poverty Alleviation: Public investment in infrastructure projects, social welfare schemes, and rural development initiatives can create employment opportunities and contribute to poverty alleviation.
    • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), for instance, has generated billions of person-days of employment since its inception.
  • Human Capital Development: Public investment in education, healthcare, and skill development is crucial for building a skilled and productive workforce, which is essential for sustained economic growth.
    • Also, public investment ensures balanced development across regions. It reduces disparities and promotes inclusive growth.
  • Crowding-in Private Investment: Public investment in infrastructure and other productive sectors can create a favourable environment for private investment by reducing the cost of doing business and enhancing overall productivity.

Which Sunrise Sectors in India are Seeking Substantial Public Investments?

• Carbon Capture, Utilization, and Storage (CCUS): CCUS technologies can play a crucial role in mitigating greenhouse gas emissions, particularly from industries like steel, cement, and power generation.
  • However, public investment in research, development, and deployment of CCUS projects in India is currently limited.
• Cybersecurity and Data Protection: With the increasing digitalization of the economy and the rise of cyber threats, public investment is needed to enhance India's cybersecurity infrastructure, develop robust data protection frameworks, and build a skilled workforce in this domain.
• Biotechnology and Precision Medicine: Public investment in biotechnology research, particularly in areas like genomics, synthetic biology, and precision medicine, can help India develop cutting-edge healthcare solutions and position itself as a leader in this field.
• Circular Economy and Waste Management: While some initiatives have been taken, more public investment is required to develop a comprehensive circular economy framework, including infrastructure for waste collection, recycling, and resource recovery.
• Blue Economy and Marine Research: With India's vast coastline, public investment in marine research, sustainable ocean exploration, and the development of a blue economy focused on sectors like offshore wind energy, marine biotechnology, and coastal tourism could unlock significant economic opportunities.