By Arul Louis
United Nations, The International Monetary Fund, which sharply cut India’s growth rate, is projecting a recovery in 2020-21, the organisation’s Chief Economist Gita Gopinath said on Monday.
The recovery “should come from the monetary stimulus that has been put in the system and some of it from the corporate tax cut,” she said at a news conference in Davos for the release of the World Economic Outlook (WEO) update.
India’s growth rate is expected to shoot up from the estimate of 4.8 per cent for the current fiscal year by 1 per cent to 5.8 per cent in 2020-21, according to the update.
It is projected to further increase to 6.5 per cent in 2021-22, the IMF said.
IMF’s latest growth estimate of 4.8 per cent for the current fiscal year is a drastic cut from the 6.1 per cent made in October and even more from the 7.5 per cent made in January last year.
The forecasts for the next two fiscal years, although showing an upward trend, are lower than the 7 per cent for 2020-21 and the 7.5 per cent for 2021-22 made by the IMF in October.
Asked at the interactive video news conference about the sharp cuts, Gopinath gave two reasons for the reassessment.
She said, “In India, relative to the numbers we had projected in October, the first two fiscal quarters of the fiscal year 2019-20 (that) came in much weaker than expected. An important reason for this is the stress in the financial sector, particularly in the non-bank financial sector, because of which there has bee a sharp slowing of credit growth.”
“In addition to that, there was weak rural income growth and that has also affected domestic demand,” she said.
The WEO update blamed India’s economic slowdown for a “lion’s share” of the 0.1 per cent cut in the global economic growth projections for last year to 2.9 per cent and to 3.3 per cent for the current year from those made in October.
It also cut the global economic projections for 2021 by 0.2 per cent to 3.4 per cent.
“A more subdued growth forecast for India accounts for the lion’s share of the downward revisions,” the IMF said.
Despite the cuts for India, it is the second-fastest growing major economy after China this year and the next, and it is expected to overtake China in 2021, according to the WEO update.
China’s growth rate projections are 6.1 per cent for 2019, 6 per cent in 2020 and 5.8 per cent in 2021.
India is also doing better than the once-roaring Asian tigers of the ASEAN, whose economic growth was estimated at 4.7 per cent last year and is projected to increase to 4.8 per cent this year and 5.1 per cent next year, the IMF said.
IMF Managing Director Kristalina Georgieva said that the world was seeing “a tentative stabilisation, sluggish recovery” from last year’s slump, the lowest growth since 2008.
She said that one of the factors contributing to the recovery was the “accommodative monetary policies” adopted by countries around the world.
There were 71 rate cuts by about 40 countries and these contributed 0.5 per cent to the global growth estimate “or else we would have been talking of a recession,” she said.
But a turning point has not been reached and now it was time to focus on boosting economic growth through other measures like economic and financial reforms and structural changes, she said.
The US-China trade war has abated with the recent agreements and the prospect of a “no-deal Brexit” has lessened.
Georgieva warned that there was no room for complacency because the 2020s face some of the risks that the world faced in the 1990s — high expectations, huge risk and rewards, and technological changes.
She stressed the need for multilateralism and increasing international cooperations.
The 1920s saw a widespread recession and the Depression in the United States.
The IMF gave India the lowest growth projection of the three made by international organistions this month — all of which downgraded it from previous estimates.
The World Bank estimated India’s growth rate to be 5 per cent for the current fiscal year, while the UN put it at 5.7 per cent.
The WEO update said that globally, “trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity, especially manufacturing and trade, in the second half of 2019.”
It added, “Intensifying social unrest in several countries posed new challenges, as did weather-related disasters.”
Despite these, IMF said, “Some indications emerged toward year-end that global growth may be bottoming out.”
At the same time it cautioned, “Downside risks, however, remain prominent, including rising geopolitical tensions, notably between the United States and Iran, intensifying social unrest, further worsening of relations between the United States and its trading partners, and deepening economic frictions between other countries.”
(Arul Louis can be contacted at [email protected] and followed on Twitter @arulouis)