Oil prices weigh on India’s growth: IMF
BENGALURU: High oil prices -- a fallout of the Ukraine war -- will weigh on India’s growth prospects, increase its current account deficit and push up inflation, the International Monetary Fund said on Tuesday. It recommended monetary tightening to control inflationary expectations.
The multilateral institution in its latest World Economic Outlook estimated India’s growth at 8.2% in 2022-23, down 0.8 percentage points from the January forecast, in view of geopolitical tensions and pandemic-induced slowdown in China.
“We see the difficult policy trade-offs with policymakers supporting growth, while controlling inflation. We have seen that inflation has spilled out of the tolerance band, which is an outcome of war as the country is dependent on oil and commodity
imports,” said Anne-marie Gulde-wolf, acting director of the IMF’S Asia and Pacific department. She added that in the short run, an accommodative fiscal stance -- higher spending -- is appropriate, supporting vulnerable households and putting focus on infra investments. At the same time, she said, “well communicated monetary policy actions are needed, probably some monetary tightening” -which would mean raising interest rates. The IMF has projected India’s growth for 2023-24 to slow to 6.9% from 7.2% estimated earlier.
Gulde-wolf added that to enhance India’s growth potential it was important to address structural weakness and bottlenecks. “These bottlenecks pertain to land, labour market, better education outcomes, and getting a higher share of females in the labour force. Some potential is there but requires policy actions,” she added.