IMF Downgrades India’s Growth Projection to 6.1% in 2019

The IMF on Tuesday, 15 October, slashed India’s GDP growth projection for the year 2019 to 6.1 percent.

(Photo: Reuters)

The IMF on Tuesday, 15 October, slashed India's GDP growth projection for the year 2019 to 6.1 percent, which is 1.2 percent down from its April projections.

The International Monetary Fund (IMF) in April said India will grow at 7.3 percent in 2019. However, three months later it projected a slower growth rate for India in 2019, a downward revision of 0.3 percent.

As against India’s real growth rate of 6.8 percent in 2018, the IMF in its latest World Economic Outlook projected India’s growth rate at 6.1 percent in 2019 and noted that the Indian economy is expected to pick up the next year at 7.0 percent in 2020.

On Sunday, the World Bank in its latest edition of the South Asia Economic Focus said India's growth rate is projected to fall to 6 percent in 2019 from 6.9 per cent of 2018.

Weaker-Than-Expected Outlook for Domestic Demand

The downward revision relative to the April 2019 WEO of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand, the IMF said.

"Growth 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, the IMF said.

China, whose GDP grew at 6.6 percent in 2018, is now projected to grow at 6.1 percent in 2019 and 5.8 percent in 2020, it said.

“India’s economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies,” said the World Economic Outlook released ahead of the annual meeting of the IMF and the World Bank.

In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand, it said.

In its report, the IMF said that in India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence.

A credible fiscal consolidation path is needed to bring down India's elevated public debt over the medium term.

Global Growth Outlook Weakest Since 2008 Financial Crisis

The global economy is in a "synchronised slowdown" amidst growing trade barriers and heightened geopolitical tensions, the IMF warned on Tuesday as it downgraded the 2019 growth rate to three percent, the slowest pace since the global financial crisis.

"This is a serious climbdown from 3.8 percent in 2017, when the world was in a synchronised upswing," Indian-American Gita Gopinath, chief economist of the International Monetary Fund (IMF) said in the foreword to the latest World Economic Outlook.

"With a synchronised slowdown and uncertain recovery, the global outlook remains precarious. At 3 percent growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions," she said.

Besides supporting growth, such actions can also help catalyse needed cooperative solutions to improve the global trading system, Gopinath said.

Released ahead of the annual meeting of the IMF and World Bank, Gopinath in the World Economic Outlook said that this subdued growth is a consequence of rising trade barriers; and elevated uncertainty surrounding trade and geopolitics.

‘Important for India to Keep Fiscal Deficit in Check’

Gopinath also said it is important for India to keep fiscal deficit in check.

In India's case, there has been a negative impact on growth that has come from financial vulnerabilities and the nonbank financial sector, and the impact on consumer borrowing and borrowing of small and medium enterprises, Gopinath said.