The International Monetary Fund (IMF) has made a downward revision of India’s Gross Domestic Product (GDP) growth forecast for 2019-20. This is in line with similar revisions made by the Asian Development Bank (ADB) and the Reserve Bank of India (RBI). The revised figures were published in the World Economic Outlook (WEO), a semi-annual survey conducted by the IMF.
Global Overview
According to the IMF, global growth is projected at 3.3% for 2019, a drop from 3.6% in 2018 and 4% in 2017. Factors contributing to this lowered forecast include the ongoing U.S.-China trade tensions, macroeconomic stress situations in Turkey and Argentina, tighter credit policies in China, and rising levels of debt and inequality. This projected rate of global growth is the lowest since the 2008 financial crisis.
However, the IMF anticipates a return to 3.6% global growth rate in the second half of the year. This projection relies on economic recovery in Argentina and Turkey. But risks posed by Brexit uncertainties and China’s slower-than-expected growth could potentially offset this forecasted pickup.
Looking beyond 2020, the IMF predicts that growth will level out at around 3.5%, primarily driven by economic expansion in China and India.
India’s Economic Outlook
For India, the IMF forecasts growth rates of 7.3% in 2019 and 7.5% in 2020, facilitated by continued recovery of investment, robust consumption, an expansionary monetary policy, and expected impetus from fiscal policy. However, these are down by 10 and 20 basis points respectively from previous forecasts.
| Year | Expected Growth Rate |
|---|---|
| 2019 | 7.3% |
| 2020 | 7.5% |
Recommendations and Policy Changes
The survey report suggests that increased multilateral cooperation is required at the global level to resolve trade disputes, tackle climate change and cybersecurity risks, and enhance the efficacy of international taxation.
For India specifically, the IMF recommends persistent implementation of structural and financial sector reforms to decrease public debt and foster growth. The need for improving governance of public sector banks, modifying hiring and dismissal regulations to incentivize job creation, continuing fiscal consolidation to reduce public debt, enhancing goods and services tax compliance, and decreasing subsidies were noted as particular areas of focus.
The IMF also appreciates the steps taken by the Indian government to hasten the resolution of Non Performing Assets (NPAs) and simplify the bankruptcy framework. Improved governance of public sector banks can bolster these measures. Recommended legal changes concerning land reform could speed up infrastructure development, while amendments to employment laws could help create jobs and accommodate India’s significant demographic dividend.