IMF lowers India’s growth forecast to 6.8% for 2022-23

The International Monetary Fund (IMF) on Tuesday sharply lowered India’s economic growth forecast to 6.8% in its latest World Economic Outlook, compared to 7.4% it had estimated earlier in July, citing the impact of external headwinds and weaker than expected second quarter growth.

It highlighted that the global economy continues to face challenges including inflation, tightened financial conditions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic. The report pointed out that more energy and food price shocks might cause inflation to persist for longer while global tightening in financing conditions could trigger widespread emerging market debt distress. However, the IMF cautioned that the monetary policy could miscalculate the right stance to reduce inflation.

The multilateral agency retained India’s growth forecast for 2022-23 at 6.1%, despite lingering downside risks.

“The outlook for India is growth of 6.8%, a 0.6 percentage point downgrade since the July forecast, reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand,” said the IMF in its World Economic Outlook: Countering the Cost-of-Living Crisis.

 However, despite the growth forecast downgrade, India will remain one of the fastest growing key economies in the world in 2022 and 2023. China’s growth is estimated to slow to 3.2% in 2022 and by 4.4% in 2023.

India’s official data released in August showed that the economy grew well below expectations at 13.5% in the April-July quarter due to dismal performance of the manufacturing sector.

 The IMF forecast follows a slew of downward revisions in growth by other agencies as well. The World Bank last week lowered India’s growth forecast to 6.5% for 2022-23, while the Asian Development Bank and the Reserve Bank of India cut the projection to 7%.

It expects global growth to remain unchanged in 2022 at 3.2% and to slow to 2.7% in 2023, which is 0.2 percentage points lower than the July forecast, with a 25% probability that it could fall below 2%.  It cautioned that the risks to the outlook remain unusually large and to the downside.

Some emerging markets and developing economies including Russia and South Africa along with advanced economies including the United States and Euro area countries like Germany, France, and Italy underwent an upward revision in their economic forecast on improved outlook.

In fact, the world’s 19th largest economy, Saudi Arabia, is now estimated to grow faster than India at 7.6% in 2022 and by 3.7% in 2023.

It estimates India’s inflation at 6.9% in 2022-23 and cool to 5.1% in 2023-24. Normalization of monetary and fiscal policies that delivered unprecedented support during the pandemic is cooling demand as policymakers aim to lower inflation back to target, it said.

India’s retail inflation has been hovering at record levels of 7%, far above the Reserve Bank of India’s tolerance range of 4-6% for eight consecutive months, largely led by higher food prices and pressures from rising global oil and commodity prices. The RBI has also retained inflation projection at 6.7% for the current fiscal year in its latest policy meet. 

The IMF cautioned that monetary policy could miscalculate the right stance to reduce inflation. However, it added that front-loaded and aggressive monetary tightening is critical to avoid inflation, de-anchoring as a result of households and businesses basing their wage and price expectations on their recent inflation experience.

The RBI led monetary policy committee hiked the repo rate by 50 basis points for the fourth time in a row on 30 September taking the policy rates to a three year high of 5.9%.


Tighter global monetary and financial conditions will work their way through the economy, weighing demand down and helping to gradually subjugate inflation. So far, however, price pressures are proving quite stubborn and a major source of concern for policymakers. We expect global inflation to peak in late 2022 but to remain elevated for longer than previously expected, decreasing to 4.1 percent by 2024.

The IMF report estimates India’s current account deficit to widen to 3.5% of GDP in 2022-23, from 1.2% last year, and narrow to 2.9% of GDP in FY24.

The IMF suggested that countries where the pandemic is now firmly receding, should start rebuilding fiscal buffers. “As the pandemic vividly illustrated, fiscal space is essential for dealing with crises. Countries with more fiscal room were better able to protect households and businesses,” it said. It added that the fiscal policy should not work at cross-purposes with monetary authorities’ efforts to quell inflation. “Doing otherwise will only prolong the fight to bring inflation down, risk de-anchoring inflation expectations, increase funding costs, and stoke further financial instability, complicating the task of fiscal as well as monetary and financial authorities,,” it added.