IMF cuts India’s growth forecast to 7.4 per cent

The International Monetary Fund (IMF) has lowered India’s growth forecast by 80 basis points to 7.4 per cent for FY 2022-23. In April, it projected growth rate at 8.2 per cent,

Even for FY 2023-24, it has cut the growth forecast to 6.1 per cent from 6.9 per cent as said in April.

“For India, the revision (for FY 23) reflects mainly less favourable external conditions and more rapid policy tightening,” IMF said in its latest update of World Economic Outlook (WEO), titled ‘Gloomy and More Uncertain’, released on Tuesday. Further it said that downgrades for India, China and US are driving the downward revisions to global growth during 2022–23, which reflect the materialisation of downside risks highlighted in the April 2022 WEO.

Real GDP growth

IMF’s revision appears to be in line with what Finance Ministry said in Parliament last week. In a written response, Minister of State for Finance Pankaj Chaudhury said as per the Provisional Estimates of Annual National Income, 2021-22, growth of Real Gross Domestic Product (GDP) during 2021-22 is estimated at 8.7 per cent, which has more than recovered the pandemic induced loss of GDP in 2020-21.

“The growth momentum is expected to continue in 2022-23 as well as seen in several high frequency indicators. Though the geopolitical situation and the consequent elevated commodity prices have imparted considerable uncertainty to the global growth momentum, India’s real GDP growth is expected to be still above 7 per cent in 2022-23,” he said.

Earlier, Asian Development Bank (ADB) revised projection to 7.2 per cent from 7.5 per cent. 

The Monetary Policy Committee (MPC), in April, revised its projection to 7.2 per cent from 7.8 per cent. In June, it retained the projection in June but with cautious optimism. It said that the forecast of normal south-west monsoon should boost kharif sowing and agricultural output. This will support rural consumption. The rebound in contact-intensive services is expected to sustain urban consumption. “Nevertheless, the negative spillovers from geopolitical tensions; elevated international commodity prices; rising input costs; tightening of global financial conditions; and slowdown in world economy continue to weigh on the outlook,” MPC’s statement read.

Meanwhile, the Union government is hopeful that India’s growth story will be different from many of other economies. It feels various initiatives to drive economic growth while managing inflation and mitigating its impact on weaker sections of the society, will have impact on overall growth. It says successful launch of the Production Linked Incentive Scheme (PLIS), Gatishakti Scheme, National Infrastructure Pipeline, development of renewable sources of energy while diversifying import dependence on crude oil, and strengthening of financial sector are key developments that will sustain economic growth in 2022-23.

Global Growth

Meanwhile, talking about global growth latest WEO update revised the projection for global growth in 2022 by 40 basis points to 3.2 per cent. Growth in 2021 was 6.1 per cent. Talking about reasons, it said lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States. In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spillovers. And in Europe, significant downgrades reflect spillovers from the war in Ukraine and tighter monetary policy.

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