India’s Growth Projections Slashed at 6.1% for the Year 2019

In April, the IMF had said India would grow at 7.3 per cent in 2019 and barely three months later has it again revised its projection figures. Amid the US-China trade war and hard Brexit talks, the IMF also warned that the world economy is slowing to its weakest pace since the 2008 global financial crisis.

“With a synchronized slowdown and uncertain recovery, the global outlook remains precarious,” International Monetary Fund chief economist Gita Gopinath said in her introduction to the latest forecasts.

“A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade,” the IMF said, which in addition to the higher tariffs and trade uncertainty is the result of the contracting auto industry.

That slowdown has had an impact in Germany, China and India, the report said. Indian, however, retains its rank as the world’s fastest-growing major economy, tying with China, despite an almost one per cent cut in the forecast.

However, the WEO projected India’s economy to pick up and grow by 7 per cent in the 2020 fiscal year.

Explaining the cut in growth projection for India, the WEO 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 non-bank financial companies.”

It added that “corporate and environmental regulatory uncertainty” were other factors that weighed on demand.

IMF’s projected growth rate of 6.1 per cent for 2019-20 is consistent with the Indian Monetary Policy Committee’s forecast.

WEO said India’s growth in 2019 is sharply lower than the 6.8 per cent in 2018 “for idiosyncratic reasons, but is expected to recover in 2020”.

The reduction in India’s growth projection for this year “reflects a weaker-than-expected outlook for domestic demand”, WEO said.

India’s future “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”, it added.

In the medium term, the IMF expects India’s growth to stabilize at about 7.3 per cent over the medium term, based on continued implementation of structural reforms.