(Photo: Bloomberg)
(Photo: Bloomberg)

IMF slashes India's FY20 GDP growth forecast by 90 bps to 6.1%

  • Growth in India will be supported by lag effect of monetary policy easing, a reduction in corporate income tax rates, says IMF said in its bi-annual World Economic Outlook
  • IMF also lowered India's FY21 GDP growth forecast by 20 bps to 7.2%

New Delhi: The International Monetary Fund (IMF) on Tuesday slashed its economic growth forecast for India to 6.1% for the current fiscal from its July projection of 7%, citing weaker than expected outlook for domestic demand. IMF also lowered India's FY21 GDP growth forecast by 20 bps to 7.2%

“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," IMF said in its bi-annual World Economic Outlook.

The IMF joins a parade of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India, after Asia’s third-largest economy grew at its slowest pace in six years in the June quarter at 5%.

The World Bank on Sunday slashed its economic growth forecast for India to 6%, citing a broad-based and severe cyclical slowdown. Last week, Moody’s Investors Service lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly due to long-lasting factors. The rating agency’s projection is the most pessimistic so far.

The Indian economy is battling a severe demand slowdown and liquidity crunch that resulted in growth rate slowing to 5% in the three months ended June, while growth in private consumption expenditure slumped to an 18-quarter low of 3.1%. India’s industrial output contracted 1.1% in August, its worst show in 81 months, signalling a deepening of the economic downturn.

The multilateral agency said India’s economy decelerated in the second quarter (April-June), held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of non-bank financial companies.

IMF chief economist Gita Gopinath in a statement said the global economy was in a synchronized slowdown and the Fund, once again, is downgrading growth for 2019 to 3%, its slowest pace since the global financial crisis.

“Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions. We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8% by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and structural forces—such as low productivity growth and aging demographics in advanced economies," she added.

The WEO report said growth in India will be supported by lag effect of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programmes to support rural consumption.

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