The International Monetary Fund (IMF) on Monday sharply revised downward India’s growth forecast by 130 basis points to 4.8% for 2019-20, which resulted in a subsequent downward revision in its world growth projection.
In its World Economic Outlook update, the IMF chief economist Gita Gopinath said growth in India slowed sharply “owing to stress in the nonbank financial sector and weak rural income growth". “We project global growth to increase modestly from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for 2019 and 2020, and 0.2 percent for 2021, is owed largely to downward revisions for India," she added.
IMF in its Article IV consultation report on India released last month said that the Indian government should avoid a fiscal stimulus to boost the sagging economy and, instead, opt for an easier monetary policy. “In the near-term, given the cyclical weakness of the economy, monetary policy should maintain an easing bias, at least until the projected recovery takes hold. Fiscal stimulus should be avoided, given (that the) fiscal space (is) at risk and revenue losses from the recent corporate income tax rate cut should be offset. In the event of a more severe economic slowdown than currently envisaged, any fiscal stimulus should be temporary, focusing on measures to boost near-term growth, such as immediate investment expensing or public infrastructure spending," IMF had said.
India’s economic growth had decelerated to a six-and-a-half-year low of 4.5% in the September quarter. The statistics office has estimated the economy to pick up in the second half of the financial year to register 5% overall growth in 2019-20. During her recent visit to India, Gopinath had indicated that India’s growth projection will be revised sharply downward.
IMF has revised China’s growth upward by 0.2 percent to 6 percent for 2020, reflecting the trade deal with the United States.
“The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico," IMF said.