IMF Hikes India Growth Forecast
Though the global financial institution has always held that India is a bright spot in a bleak global scenario, now it’s bumped up its forecast further
India’s economic growth story received a further fillip as the International Monetary Fund (IMF) has jacked up its growth forecast for the current financial year from the 5.9% estimated in April to 6.1% in a revised figure of 6.1% in July. However, the Fund has left its forecast for FY25 unchanged at 6.3%.
“Growth in India is projected at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment,” the IMF stated in its July update of the World Economic Outlook.
Strong domestic investments pulling up India
While IMF pointed to strong domestic investment fuelled by growing demand as the cause for upgrading India’s growth numbers, it also warned that the global economy is far from being out of the woods. The battle against inflation is far from over, the publication says while also noting that it may take some more time before the interest rates cooled down.
However IMF’s predictions for India’s annual growth rates are still way below what the government itself is talking about. Recent data suggested that India’s GDP grew by 6.1% during the January-March quarter. This resulted in the growth rates for the entire FY23 being pushed up further to a strong 7.2%.
IMF’s numbers are also lower than the RBI’s figures of 6.5% growth in the current fiscal year. On its part, the Asian Development Bank updated its own set of numbers that retained India’s GDP growth at 6.4%, while citing a revival of consumption demand in both rural and urban areas, especially for white goods – often considered a ballpark for economic recovery.
Inflation is the key challenge, says IMF
The Fund suggested that inflation would decline to 4.9% by the terminal month of the current fiscal year with food prices easing amidst strong actions initiated by the RBI. Daniel Leigh, division chief of the research department at IMF notes that India needs to continue to create a balance between inflationary pressure and output to control the rate of price rise in the 2% to 6% range for the future.
However, there were a few cautionary mentions in the report, including one regarding India’s ban on non-basmati rice exports. The Fund noted that such restrictions exacerbate volatility in global food prices. There were reports around how supermarkets in the US were charging a premium on imported rice from India.
Global economy could grow by 3% in 2023
Referring to the global economy, the latest Outlook says recovery has been slow as the world faced a debilitating pandemic followed by the battle in Ukraine. “The resolution of US debt ceiling tensions has reduced the risk of disruptive rises in interest rates for sovereign debt, which would have increased pressure on countries already struggling with increased borrowing costs,” the report said.
It forecast a 3% growth in the global economy during 2023, which represents a 0.2 percentage point upgrade over the projections made in April. It is pertinent to note that the global economy expanded by 3.5% during 2022. The Bank said global economic activity was losing momentum due to the tightening of money supply and the slow recovery in China, besides high inflation.
The Fund noted that while inflation was easing in most countries, it remained high with diverges across economies and inflation measures. It forecast that global headline inflation was set to decline to 6.8% in 2023 from 8.7% last year, whereas core inflation will slow down to 6% from 6.5% earlier.
