The head of the IMF’s India team Ranil Salgado described the country’s $2.6trn economy gaining momentum as “an elephant beginning to run”.

This was the result of policies, such as the introduction of the goods and services tax and more openness to foreign investors, Salgado said.

The Washington-based lender forecast India’s growth at 7.3% in the fiscal year through to March 2019 and 7.5% in the year after that.

India accounts for about 15% of global growth, the Fund said.

Salgado said that the new tax should improve productivity by providing more economic activity and creating more jobs, which will in turn boost growth.

This will also “create more room for the government to increase much needed social and infrastructure spending”, he said.

But the IMF flagged that higher oil prices, tightening global financial conditions and tax revenue shortfalls could be a risk to India’s economy, in its annual assessment of the economy.

The IMF urged the Indian government to take advantage of the momentum to bring down debt levels, simplify the consumption tax system and continue to tighten monetary policy.

Additionally, the IMF head said governance in public sector banks should be strengthened to complement the reforms in the financial sector that are already underway.

“This is needed, for example, to improve incentives to enhance the efficiency of bank operations and foster more disciplined lending practices by banks.

“The first step would be to strengthen the quality and independence of these banks’ boards and privatisation could also eventually be considered,” he said.