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economy | IST

IMF chief economist Gita Gopinath says India GDP growth unlikely to recover in H2FY20

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IMF chief economists Gita Gopinath said India's GDP growth was expected to pick up in the last two quarters of FY20 but some high-frequency indicators show that a recovery is unlikely.

India's economic growth, which has been contracting for last several quarters, is likely to remain muted in the December and March quarters of the fiscal year 2019-20, said Gita Gopinath, chief economist, the International Monetary Fund.
Gopinath said India's GDP growth was expected to pick up in the last two quarters of FY20 but some high-frequency indicators show that a recovery is unlikely. "That is what is leading us to revaluate our assessment that was put out in October,” she added.
The IMF will release a report on India's economic growth outlook on January 20, 2020, and is expected to cut the growth estimate for India "significantly".
Problem areas
She noted that some of the issues are not easy to solve quickly such as problems with the banking sector, which tend to be long-drawn not just in India but globally. "In the case of India, there were certain issues that had to be set up with the whole new insolvency and bankruptcy code and that adds further delays."
Several uncertainties around the sector have reduced banks' risk appetite at this point and that has been showing up in slowing credit growth in India, said Gopinath.
“The reason that this has been a bit of a surprise in terms of the growth numbers is that if you look at for instance business sentiment indicators, they have held up quite well. In October and November, you saw pretty steep drop in the sentiment. That is hard to predict and that is another feature of what we are seeing right now,” she also said.
Moreover, consumption spendings slowed down due to poor rural income growth and farm output this year, she added.
Role of RBI monetary policy
Gopinath said that the Reserve Bank of India's reduced rates by 135 basis points this year and that is a significant amount of stimulus in the system. The pass-through in 2019 has been lower than in the previous years, but it is expected to improve in 2020, she added.
"In general monetary policy works with a lag so you expect to see the effect showing up more in 2020," said Gopinath.
The central bank had decided to hold rates, despite slowing economic growth, due to rising inflation. "I believe, looking at the economy, you would want to have more stimulus in the economy. Another important indicator to pay attention to is inflation expectations. Inflation expectations have edged up quite significantly in the last couple of months," she added.