The International Monetary Fund (IMF) on Tuesday lowered its growth forecast for India by 20 basis points to 5.9 per cent in the current fiscal. While this is the second lowest growth forecast, after that by OECD, India remains among the fastest growing economies in the world.

The latest projection comes at a time when the IMF has been repeatedly calling India a ‘bright spot’.

It has also lowered the growth forecast for the next fiscal (2024-25) by 50 basis points to 6.3 per cent. In January this year, IMF had estimated a growth rate of 6.1 per cent and 6.8 per cent for FY 24 and FY 25. A key reason for lowering the growth forecast is global uncertainties. At the same time, various agencies also anticipate lower consumption demand due to higher interest rates.

IMF has lowered the global growth forecast by 10 basis points (100 basis points = 1 percentage point) each in 2023 and 2024 from its January forecast. In its annual publication ‘World Economic Outlook’ with the title ‘A Rocky Recovery’, IMF’s Economic Counsellor and the Director of Research, Pierre-Olivier Gourinc, has forecast that growth will bottom out at 2.8 per cent this year, before rising modestly to 3 per cent next year.

“Global inflation will fall, though more slowly than initially anticipated, from 8.7 per cent last year to 7 per cent this year and 4.9 per cent in 2024,” he wrote in his introductory blog. This year’s economic slowdown is concentrated in the advanced economies, especially the euro area and the UK, where growth is expected to fall to 0.8 per cent and -0.3 per cent this year, before rebounding to 1.4 and 1 per cent respectively. By contrast, despite a 0.5 percentage point downward revision, many emerging markets and developing economies are picking up, with year-end to year-end growth accelerating to 4.5 per cent in 2023, from 2.8 per cent in 2022.

Growth forecast for India

Earlier this month, two multilateral agencies, World Bank and the Asian Development Bank (ADB), cut their growth forecast for FY24 by 30 basis points and 80 basis points, respectively. The World Bank has revised its FY24 GDP forecast to 6.3 per cent, as against its December projection of 6.6 per cent. “Growth is expected to be constrained by slower consumption growth and challenging external conditions. Rising borrowing costs and slower income growth will weigh on private consumption growth, and government consumption is projected to grow at a slower pace due to the withdrawal of pandemic-related fiscal support measures,” the bank had said.

However, ADB has cut its growth projection to 6.4 per cent from 7.2 per cent (as announced in December) for FY24. “The growth moderation in FY2023 is premised on the ongoing global economic slowdown, tight monetary conditions and elevated oil prices,” the agency had said.

Interestingly, RBI bucked the trend and raised the forecast to 6.5 per cent from 6.4 per cent. For this, it listed reasons including the possibility of a good rabi crop and its impact on rural demand, likely support from sustained buoyancy in contact-intensive services on urban demand, higher capital expenditure and moderation in commodity prices.