In its latest World Economic Outlook, the International Monetary Fund (IMF) has cut India’s growth forecast by 20 basis points to 7.3 percent for the current financial year, citing National Accounts Statistics data, which indicated softer underlying momentum.
One basis point is a hundredth of a percentage point.
The international body had projected that the Indian economy will grow 7.5 percent in FY21 against 7.7 percent estimated earlier. In January this year, the IMF had raised India's growth projection for 2019 by 10 basis points to 7.5 percent.
In the April meeting, the central bank's Monetary Policy Committee (MPC) has cut its GDP growth forecast for FY20 to 7.2 percent, due to weakening global economic growth and slower pick-up in the domestic investment activity.
"In India, continued implementation of structural and financial sector reforms with efforts to reduce public debt remain essential to secure the economy’s growth prospects. In the near term, continued fiscal consolidation is needed to bring down India’s elevated public debt. This should be supported by strengthening Goods and Services Tax compliance and further reducing subsidies,” IMF said in its biannual World Economic Outlook (WEO) on Tuesday.
“Important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of nonperforming assets under a simplified bankruptcy framework. These efforts should be reinforced by enhancing governance of public sector banks. Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country’s large demographic dividend; efforts should also be enhanced on land reform to facilitate and expedite infrastructure development,” it added.
On the other side, the fund has projected a slowdown in global economic growth in 2019 due to the escalation of US-China trade tensions, credit tightening in China, normalisation of monetary policy in the larger advanced economies, among others.
According to the IMF, global growth is now projected to slow from 3.6 percent in 2018 to 3.3 percent in 2019, before returning to 3.6 percent in 2020. Growth for 2018 was revised down by 0.1 percentage point relative to the October 2018 World Economic Outlook (WEO), reflecting weakness in the second half of the year, and the forecasts for 2019 and 2020 are now marked down by 0.4 percentage point and 0.1 percentage point, respectively.
Global Growth Beyond 2020
The IMF said that global growth is set to plateau at about 3.6 percent over the medium term beyond 2020, sustained by the increase in the relative size of economies, such as those of China and India, which are projected to have robust growth by comparison to slower-growing advanced and emerging market economies (even though Chinese growth will eventually moderate)," the report said.
For China, the fund has projected the economic growth at 6.3 percent, revised downwards by 10 bps to 6.1 percent for 2020. In January, the IMF had projected China’s economic growth to be 6.2 percent for 2019, the same as the IMF’s previous prediction last October.
The fund has revised US' growth forecast downwards by 20 bps to 2.3 percent and raised by 10 bps to 1.9 percent for 2020.
Gita Gopinath's Take
"After the weak start, growth is projected to pick up in the second half of 2019. This pickup is supported by significant monetary policy accommodation by major economies, made possible by the absence of inflationary pressures despite growing at near potential. The US Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England have all shifted to a more accommodative stance," Gita Gopinath, Chief Economist of IMF, said in her blog on the outlook.“Policymakers need to work cooperatively to help ensure that policy uncertainty doesn’t weaken investment. Fiscal policy will need to manage trade-offs between supporting demand, protecting social spending, and ensuring that public debt remains on a sustainable path, with the optimal mix depending on country-specific circumstances,” she added.