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IMF cuts India’s FY20 growth forecast to 4.8%

The IMF cut its estimate citing a sharper-than-expected slowdown in local demand and stress in NBFC sector.

ET Bureau|
Last Updated: Jan 20, 2020, 07.58 PM IST
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IMF lowers India’s FY20 growth estimate to 4.8%
IMF lowers India’s FY20 growth estimate to 4.8%
The International Monetary Fund has slashed its estimate on India’s 2019 economic growth to 4.8% from the 6.1% expansion it projected in October, citing a sharper-than-expected slowdown in local demand and stress in the non-bank financial sector.

The steep cut in India’s growth rate has weighed on IMF’s projection on the world economy, which it now expects to have expanded 2.9% in 2019 compared with the previous forecast of 3.0%.

The IMF’s World Economic Outlook (WEO) Update revised India’s 2020 growth forecast to 5.8%, down 0.9 percentage point from the previous estimate. For 2021, the estimate is 6.5%.

The markdown has been the highest for India in the latest WEO projections.

The report cited monetary and fiscal stimulus, along with its expectation of subdued oil prices, for the projected improvement in India’s growth this year and the next.

Globally, growth is expected to accelerate to 3.3% in 2020 from 2.9% in 2019 and further to 3.4% in 2021. The IMF has trimmed its estimate on the world economy by 0.1 point each for 2019 and 2020 and by 0.2 percentage point for 2021 from the earlier forecasts.

The WEO estimates China to have grown 6.1% in 2019. For the current year, the forecast is for 6% growth.

“A more subdued growth forecast for India accounts for the lion’s share of the downward revisions,” the IMF said.

IMF’s chief economist, Gita Gopinath, had in December said India’s growth forecast was likely to be revised down “significantly” in the upcoming January review.

Other agencies have also slashed the growth forecast for India.

Last week, the United Nations cut India’s FY20 growth forecast to 5% from 5.7, in line with the estimate of the government’s statistics office. The World Bank too has cut its estimate to 5% from the previous forecast of 6%.

“In the third quarter of 2019, growth across emerging market economies (including India, Mexico, and South Africa) was weaker than expected at the time of the October WEO, largely due to country-specific shocks weighing on domestic demand,” the IMF said.

On the upside, the effects of monetary easing and improved sentiment resulting from phase one of the US-China trade deal are likely to improve prospects of a global recovery. However, downside risks like rising US-Iran tensions could disrupt oil supply and weaken investment, said the report.

For the emerging markets, the report cautioned that improvement from reform efforts could fail to materialise in the face of intensifying social unrest that reflect the erosion of trust in established institutions and lack of representation in governance structures.

In terms of policy, the report suggested governments to enhance inclusiveness and build governance structures that strengthen social cohesion and ensure adequate safety nets to protect the vulnerable.

The government has over the past few months taken several steps to lift growth, including a cut in corporate tax rates, a real estate fund for stressed housing projects and a national infrastructure pipeline. It is expected to announce another set of measures to arrest the slowdown in the upcoming budget, to be presented on February 1.
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