The International Monetary Fund on Friday projected a growth rate of 6.8% and 6.1% for India in the current and next fiscal, and said the country is navigating a “very challenging” external environment.
Speaking to reporters about India’s financial situation, Choueiri Nada, IMF India Mission Chief, said: “We are seeing the economy continue to grow quite strongly this year.” He further said that India continues to be a bright spot in a dark global economic scenario.
According to the report, growth is expected to moderate, reflecting a less favorable outlook and tighter financial conditions. Real GDP is projected to grow by 6.8 percent and 6.1 percent in FY2022/23 and FY2023/24, respectively, the IMF’s report on India said. These projections are much better than the ones projected earlier, according to Nada.
“In fact, in our forecast, India contributes half a percent to global growth this year and next,” he said. “But, of course, there are important risks and having asked about them, we see that the risks are mostly low and mostly come from external factors. Perhaps the most important risk is a sharper-than-expected global slowdown,” he said.
“We are seeing the global economy slowing down next year. But the speed of the slowdown has downside risks, and could be much sharper than we expected in the report. This will affect India through trade and financial channels,” Nada said. He said the IMF continues to see the war in Ukraine as unresolved and could escalate and affect trade and commodity prices.
“You have seen only one inflation and therefore the progress of inflation could be reversed and that is also an important risk,” he said. According to the IMF, in the medium term, reduced international cooperation could further impede trade and increase financial burdens. market volatility. Domestically, rising inflation may further dampen domestic demand and affect vulnerable groups.
Conversely, however, the successful implementation of sweeping reforms or higher-than-expected dividends resulting from significant advances in digitization could boost India’s medium-term growth potential. “The other key message of the report is that India is navigating a very difficult external environment. In this respect, there is a requirement to carefully calibrate macroeconomic policies on the fiscal side, as we have seen this year that additional support for the vulnerable groups was needed,” said Nada.
Fiscal policy should prioritize medium-term consolidation in the overall envelope, ensuring the maintenance of high-quality spending on education, health and infrastructure, he said. “We are fully supporting the government’s infrastructure plan, which is important to ensure a medium-term basis for growth. In the report, we also call for a credible and clearly communicated medium-term consolidation,” he said. Strong revenue mobilization and additional spending efficiency, the IMF official said.
On the monetary policy front, the IMF supports the policy actions taken by the RBI to tackle high inflation and believes that additional monetary policy tightening should be carefully calibrated and communicated to balance inflation and growth targets, he said. Regarding the financial sector, the report indicates the strength of the economy emerging from the pandemic crisis and the strength of credit indicators. At the same time, the report also documents the risks of tighter financial conditions facing the financial sector.
“On this side, we believe that they can be addressed through prudent regulatory measures,” said Nada. The IMF, in its report, also encouraged India to move forward with structural reforms in the financial sector, such as the introduction of an insolvency and bankruptcy code, the operationalization of a national asset restructuring company and progress in bank privatizations. “We welcome the important progress made by the authorities in their agenda, especially the significant progress made in digitization. The big push to increase the share of renewables in energy production and the recent trade agreements,” said Nada.
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