IMF slashes India's FY20 GDP growth forecast to 6.1% from 7%

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. Photo: Reuters

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

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

As against India's real growth rate of 6.8 per cent in 2018, the IMF in its latest World Economic Outlook projected India's growth rate at 6.1 per cent in 2019 and noted that the Indian economy is expected to pick up the next year at 7.0 per cent 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 per cent in 2019 from 6.9 per cent of 2018.

 

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 per cent in 2018, is now projected to grow at 6.1 per cent in 2019 and 5.8 per cent 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.

This should be supported by subsidy-spending rationalisation 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, it said.

Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country's large demographic dividend. Land reforms should also be enhanced to encourage and expedite infrastructure development, the IMF said.