New Delhi: The International Monetary Fund (IMF) further cut its annual growth forecast for India, as it expects weaker domestic demand to limit an economic recovery, according to media reports.
The economy is now expected to expand 7% in the year ending 31 March 2020, 0.3 percentage point slower than IMF’s April projection. In April, the Fund cut India’s growth outlook by 0.2 percentage point to 7.3%. Economic growth is expected to accelerate to 7.2% in the following year.
“The downward revision of 0.3 percentage point for both years reflects a weaker-than-expected outlook for domestic demand,” IMF said on Tuesday in its update to the World Economic Outlook (WEO).
The broad-based slowdown in consumption and investment demand in India was partly a reflection of the uncertainties associated with the just concluded general elections in India, as well as tightening of borrowing conditions for small and medium enterprises, IMF chief economist Gita Gopinath told reporters.
“However, we expect some of that to improve in the near term. That, along with a more accommodative monetary policy and fiscal policy of the Indian government, should remove some of the downside risks,” she said.
Gross domestic product growth in India in the March quarter slowed more than expected to 5.8% from 6.6% in the December quarter. This was the slowest quarterly GDP growth in five years. Annual GDP growth slowed to 6.8% in the year ended 31 March from 7.2% in the previous year.
Since last month, Reserve Bank of India (RBI), the Economic Survey of the finance ministry, and the Asian Development Bank have cut their growth outlook for India to 7%.
IMF said the recent softening of inflation across emerging markets and developing economies gives central banks the option of becoming accommodative, “especially where output is below potential and inflation expectations are anchored”.
Last month, RBI cut policy rates for the third consecutive time by 25 basis points (bps) and changed its stance to accommodative from neutral, signalling that more rate cuts were in store to revive growth and support faltering consumer demand.
