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IMF cuts India’s growth forecast by 90 bps to 6.1% for FY20

IMF cuts India’s growth forecast by 90 bps to 6.1% for FY20

IMF cuts India’s growth forecast by 90 bps to 6.1% for FY20
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By CNBC-TV18 Oct 16, 2019 6:55:00 AM IST (Updated)

The International Monetary Fund (IMF) on Tuesday projected a slower growth rate for India in 2019 and 2020, cutting the country's growth forecast by 90 bps to 6.1 percent for FY20 and 7 percent for FY21, a downward revision of 20 bps, compared to its July forecast.

The International Monetary Fund (IMF) on Tuesday projected a slower growth rate for India in 2019 and 2020, cutting the country's growth forecast by 90 bps to 6.1 percent for FY20 and 7 percent for FY21, a downward revision of 20 bps, compared to its July forecast.

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The downward revision relative to the April 2019 World Economic Outlook of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand.
Growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programmes to support rural consumption.
IMF sees India’s economy to grow at 6.1 percent in FY20, compared to 6.8 percent growth the previous year and then picking up to 7 percent in FY21.
"In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the non-bank financial sector, weighed on demand," the World Economic Outlook report observed.
In India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence. A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term, the report suggested.
Governance of public sector banks and the efficiency of their credit allocation need strengthening, and the public sector’s role in the financial system needs to be reduced. Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the country’s large demographic dividend.
In the report, the IMF has also slashed the global growth forecast to 3 percent for FY20 versus 3.6 percent in FY19.
The growth projection for advanced economies has been cut by 20 bps to 1.7 percent for FY20 as against 2.3 percent in FY19. The report notes that going forward, growth will be retained at 1.7 percent for 2020.
The report also notes that US-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020.
For the emerging market and developing economies, the IMF has revised growth forecast down by 3.9 percentage points for 2019 to 4.5 percent in 2018 and by 4.6 percent for 2020.
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