OECD slashes India's economic growth forecast from 7.2% to 5.9%

The Organisation for Economic Co-operation and Development (OECD) appears to be the most pessimistic on India's economy among think tanks, as it cut the GDP growth forecast by 1.3 percentage points to 5.9 per cent for 2019-20. 

For the next year, the OECD has projected the Indian economy to grow 6.3 per cent, bringing down its earlier forecast by 1.1 percentage points. 

The Paris-based policy forum said the trade war between the US and China has sent global growth momentum tumbling toward lows last seen during the financial crisis.  The OECD predicted that the global economy will see its weakest growth since the 2008-2009 financial crisis, slowing from 3.6 per cent last year to 2.9 per cent this year; it predicted 3 per cent growth for the next year. 

If the Indian economy indeed grows 5.9 per cent in 2019-20, it will be lower than 6.4 per cent in 2013-14 -- the last year of the UPA-II government -- which is termed as the policy paralysis year.  Also, India is likely to lose the tag of the fastest-growing major economy, as China is projected to grow 6.1 per cent in 2019.

The OECD's growth forecast, however, is higher than 5.5 per cent in 2012-13, another policy-paralysis year under the UPA-II government.

India is among seven countries whose economic growth projections are cut by the OECD by more than 0.6 percentage points. The other countries are Argentina, Brazil, Saudi Arabia, South Africa and Australia.

The OECD cut India's growth for FY20 following the latest official data, which showed that the country's economy expanded by just 5 per cent in the first quarter of 2019-20, the lowest in over six years. "GDP growth in India has proved surprisingly weak in the recent quarters with consumer spending having slowed and tight financial conditions restraining investments," the OECD said. 

For the next year, India's economic growth rate is projected race past China's (5.7 per cent), and it will again become the fastest-growing large economy. 

"Lower interest rates and stronger benefits from reform efforts should all help private sector demand to strengthen," the organisation said. 

However, India is among just four countries whose growth rate projections for the next are cut by at least 0.6 percentage points. The other countries are Argentina, Brazil and South Africa. 

The OECD found that India among a few other emerging market economies, such as Mexico, Brazil, Russia, and Indonesia, have scope to further ease their monetary policies, as they have flexible exchange rate frameworks and manageable exposures to foreign currency-denominated debt.

The Reserve Bank of India's monetary policy committee (MPC) will meet in October to take a call on the policy rate after it cut the rate by unconventional 35 basis points. The RBI had projected the economy to grow by 6.9 per cent during 2019-20 in its previous policy in August.

The OECD said these economies also have the opportunity to improve their fiscal positions, if needed.