The number of agencies revising India’s growth estimate is increasing, with the latest being the International Monetary Fund (IMF).
The IMF on Monday slashed India’s GDP growth rate to 4.8 per cent for the current fiscal and 5.8 per cent for 2020-21.
The agency also said that a more subdued growth forecast for India accounts for the lion’s share of the downward revisions in global forecast.
In its update to the World Economic Outlook, the agency lowered the growth projection for entire Asia from the October forecast.
“The growth markdown largely reflects a downward revision to India’s projection, where domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the agency said, while estimating India’s growth at 4.8 per cent in fiscal year 2019-20; this is projected to improve to 5.8 per cent in 2020-21 and 6.5 per cent in 2021-22.
Role of stimulus
The agency’s projection for better growth prospects for the next two fiscal years is likely to be supported by monetary and fiscal stimulus as well as subdued oil prices.
IMF’s estimate for the current fiscal is slightly higher than Fitch’s estimate but lower than the one put out by the Central Statistics Office, the Reserve Bank of India, the United Nations and the World Bank. Considering India’s role in the global economy, the IMF feels that its growth rate will impact global growth too.
Global growth is projected to rise from an estimated 2.9 per cent in 2019 to 3.3 per cent in 2020 and 3.4 per cent for 2021 — a downward revision of 0.1 percentage point for 2019 and 2020 and 0.2 for 2021 compared with those in the October World Economic Outlook (WEO).
“The downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years,” the agency said, adding that in a few cases, this reassessment also reflects the impact of increased social unrest.
With the latest estimate, India will now have to wait till 2021-22 to get the tag of the fastest growing economy.
The agency has said that growth in China is projected to inch down from an estimated 6.1 per cent in 2019 to 6.0 per cent in 2020 and 5.8 per cent in 2021.
“The envisaged partial rollback of past tariffs and pause in additional tariff hikes as part of a ‘Phase One’ trade deal with the US is likely to alleviate near-term cyclical weakness, resulting in a 0.2 percentage point upgrade to China’s 2020 growth forecast relative to the October WEO,” the agency said. But it fears that unresolved disputes in US-China economic relations as well as domestic financial regulatory strengthening will likely weigh on economic activity.
“The growth markdown largely reflects a downward revision to India’s projection, where domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth.”