OCTOBER 15, 2019
The International Monetary Fund (IMF) on Tuesday in its World Economic Outlook (WEO) report slashed India’s growth projection for the year 2019 to 6.1 per cent, which is a downgrade of 1. 2 per cent from its April projections.
In April, the IMF had said the country will grow at 7.3 per cent in 2019, and barely three months later it has 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 synchronised 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.
India, 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 stabilise at about 7.3 per cent over the medium term, based on continued implementation of structural reforms.
The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
It said: “A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term. This should be supported by subsidy-spending rationalisation and tax-base enhancing measures.”
Other measures it suggested included reducing the public sector’s role in the financial system, reforming the hiring and dismissal regulations that “would help incentivise job creation and absorb the country’s large demographic dividend”, and land reforms to expedite infrastructure development.
The auto sector is one of the areas seriously affected globally, according to the WEO.
“The automobile industry contracted in 2018 for the first time since the global financial crisis, contributing to the global slowdown since last year,” it said.
Global car sales fell by three per cent last year, while the number of automobile units manufactured declined by 1.7 per cent, in value terms it fell by 2.4 per cent, WEO said.
The number of auto units produced by China fell by four per cent, its first decline in more than two decades, according to the WEO.
It said the two main reasons for the decline of the auto sector were the removal of tax breaks in China and the rollout of new carbon emission tests in Europe.
The auto industry, it noted, had a large global footprint and vehicles and related parts are the world’s fifth largest export product, accounting for about 8 percent of global goods exports in 2018.
