Now, IMF slashes India’s growth forecast for FY20
WEAK DEMAND The Fund cuts India’s growth projection to 6.1% from 7% earlier
NEW DELHI: The International Monetary Fund (IMF) on Tuesday slashed its economic growth projection for India to 6.1% for the current fiscal from its July projection of 7%, citing weaker t han e xpected outl ook f or domestic demand.
“In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about t he health of t he non- bank financial sector, weighed on demand,” IMF said in its biannual World Economic Outlook (WEO).
The IMF joins a parade of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India, after Asia’s third-largest economy grew at the slowest pace in six years in the June at 5%.
The World Bank on Sunday slashed its economic growth forecast for India to 6% citing a broad-based and severe cyclical slowdown. Last week, Moody’s Investors Service lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly due to long-lasting factors. The rating agency’s projection is the most pessimistic so far.
The Indian economy is battling a severe demand slowdown and liquidity crunch that resulted in the growth rate slowing to 5% in the three months ended June, while growth in private consumption expenditure slumped to an 18-quarter low of 3.1%. India’s industrial output contracted 1.1% in August, its worst show in 81 months, signalling a further deepening of the economic downturn.
The multilateral agency said India’s economy decelerated in t he s econd quarter ( AprilJune), held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of non-bank financial companies
IMF chief economist Gita Gopinath in a statement said the global economy is in a synchronised slowdown and the Fund, once again, is downgrading growth for 2019 to 3%, its slowest pace since the global financial crisis.
“Growth continues t o be weakened by rising trade barriers and increasing geopolitical tensions. We estimate that the Us-china trade tensions will cumulatively reduce the level of global GDP (gross domestic product) by 0.8% by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and structural forces—such as low productivity growth and aging demographics in advanced economies,” she added.
The WEO report said growth in India will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption.
To address cyclical weakness and strengthen confidence in the economy, IMF said monetary policy and broad-based structural reforms should be used by the Indian government. “A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term. This should be supported by subsidy-spending rationalization and tax-base enhancing measures. Governance of public sector banks and the efficiency of their credit allocation needs strengthening, and the public sector’s role in the financial system needs to be reduced. Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the country’s large demographic dividend. Land r e f o r ms should also be enhanced to encourage and expedite infrastructure development,” it added.