IMF cuts India growth forecast to 6.8% for FY23

IMF cuts India growth forecast to 6.8
IMF cuts India growth forecast to 6.8

by 5paisa Research Team Last Updated: Dec 09, 2022 - 01:03 pm 13.3k Views
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It has been a tough year for global macros, and India has not been immune to that. In fact, hardly so. The latest World economic Outlook (WEO) published for October 2022 has highlighted some big challenges to growth. It has underlined factors like the Ukraine war, sky high inflation, risks of recession, consumer pessimism and the lag effect of the pandemic as the key risks. Of course, the reference is not just to the lockdowns in China but the continued impact of COVID on the economies of a host of other countries. IMF projects that the entire global economy will experience slowdown next year, including India.

After a smart 8.7% GDP growth reported in Fy22, India is projected to grow at 6.8% in FY23. Now, remember that this has already been downgraded twice. While present the previous issue of the WEO in July 2022, IMF had cut the India projected growth by 80 basis points from 8.2% to 7.4%. Now in September, while presenting the next WEO, the IMF has cut the rate of growth by another 60 basis points to 6.8%, marking a total cut of 140 basis points in the last 3 months itself. According to the IMF, the biggest risk to emerging markets and developed markets alike is the risk of rising inflation.

India, according to the IMF Chief Economist, has been doing fairly well. Of course, inflation has been sticky and that has been the biggest bugbear for the economy. However, IMF does expect the inflation levels in India to come down to 6.9% by March 2023 and to 5.1% by March 2024. That would be an outcome of the hawkish policies of the RBI, but the IMF is apprehensive that while India would avoid a hard landing, they would still have a problem of reduced growth. To a large extent, this weak export demand and reduce spending globally is likely to hit globally dependent industries like IT, metals and auto ancillaries.

The IMF also expects the global growth to remain under pressure. For instance, developed countries like the US, UK and the EU would find it a lot hard to prevent a hard landing of their economies. Some of the impact is going to be evident from the current year itself. For instance, the US is expected to grow at 1.6% in 2022 followed by a slowing down to 1.0% growth in 2023. The Euro Area will grow at a decent 3.1% in 2022 followed by just 0.5% growth in 2023. Even China is expected to see a distinct slowdown, worsened by COVID restrictions. China is forecast to grow at 3.2% in 2022 followed by 4.4% in 2023.

The IMF chief economist has warned about the risks of monetary policy and fiscal policy working at cross purposes. India was trying to boost growth fiscally while controlling inflation monetarily. The bigger risks are for the European economy. The energy crisis, in Europe, is anything but transitory. For a country like India, which depends on imports to meet 85% of its energy needs, rising energy prices can have long term impact. According to the IMF, much of what happens to growth in the next few years would largely depend on how inflation is handled by the global economies today.

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