IMF cuts India growth forecast for 2019-20 to 7.3 per cent

The International Monetary Fund (IMF) on Tuesday cut the growth forecast for India by 20 basis points for the fiscal 2019-20.

IMF has also lowered the growth projection by 20 basis points for 2019. However, there is no change forecast for 2020.

According to the latest edition of World Economic Outlook (WEO), released during 2019 Spring Meeting, India is expected to grow at 7.3 per cent in fiscal year 2019-20. This is 20 basis points lower than January outlook and 10 basis points lower than October’s forecast. Though the growth is estimated to go up at 7.5 per cent during 2020-21, still it will be 20 basis points lower than January and October 2018 forecast.

Read More: India’s GDP expected to accelerate moderately to 7.5% in 2019-20 says World Bank

“India’s (GDP) growth is supported by the continued recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy,” the report said.

It further said that nevertheless, reflecting the recent revision to the national account statistics that indicated somewhat softer underlying momentum, growth forecasts have been revised downward compared with the October 2018 WEO. It also said that growth in India is expected to stabilise at just short of 7¾ per cent over the medium term, based on continued implementation of structural reforms and easing of infrastructure bottlenecks.

The report advised that 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 elevated public debt. This should be supported by strengthening Goods and Services Tax compliance and further reducing subsidies.

Also read: India highest recipient of remittances at USD 79 billion in 2018: World Bank

The report noted that important steps have been taken to strengthen financial sector balance sheets, including through accelerated resolution of non-performing 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 incentivise 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 said.

Global outlook

Talking about global outlook, Chief Economist at IMF Gita Gopinath in her blog titled The Global Economy: A Delicate Moment said that weakness in global expansion is expected to persist into the first half of 2019 from second half of 2018. Accordingly, IMF’s new World Economic Outlook projects a slowdown in growth in 2019 for 70 per cent of the world economy. Global growth softened to 3.6 per cent in 2018 and is projected to decline further to 3.3 per cent in 2019.

According to Gopinath, with improved prospects for the second half of 2019, global growth in 2020 is projected to return to 3.6 per cent. Growth in advanced economies will slow slightly in 2020, despite a partial recovery in the euro area, as the impact of US fiscal stimulus fades and growth tends toward the modest potential for the group, given ageing trends and low productivity growth.

“Beyond 2020, global growth is expected to stabilise at around 3½ per cent, bolstered mainly by growth in China and India and their increasing weights in world income,” she said.

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