The IMF and the World Bank have significantly slashed the growth projections for India for the year 2019.
Sharp cuts in growth forecast underline the economic slowdown’s severity.
What are the observations made?
IMF - The IMF in its latest World Economic Outlook has slashed India’s GDP growth projection for 2019 to 6.1% (Oct 2019).
This is 1.2% down from its April 2019 projections of 7.3%.
Corporate and environmental regulatory uncertainty, and concerns on the health of the nonbank financial sector, affected the demand scenario.
Consequently, in India, growth weakened in 2019.
Asia’s third-largest economy, India, grew at its slowest pace in 6 years in the June quarter at 5%.
The IMF now joins a range of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India.
World Bank - The World Bank in its latest edition of the South Asia Economic Focus said India's growth rate is projected to fall to 6% in 2019 from 6.9% of 2018.
The World Bank slashed its economic growth forecast for India to 6%.
It cited a broad-based and severe cyclical slowdown as the reason.
What is the point of contention here?
A significant issue of debate is over the cause of the malaise.
The World Bank largely echoes what India’s Centre has been saying.
It says that the current one is a cyclical slowdown, exacerbated by global influences.
However, many of the Indian experts surveyed and some rating agencies do not agree with this view.
E.g. Moody’s Investors Service lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier
It ascribed the slowdown partly to “long-lasting factors”, suggesting the structural factors behind the slowdown.
What are the suggestions made?
World Bank has warned that non-banking financial companies’ significant share in total credit and their linkages with banks pose broad-based risks.
It suggests that financial sector reforms would help India both resolve the sectoral infirmities and put the country back on a rapid growth path.
The WB also observed that a sharper-than-expected slowdown in major economies such as the U.S. and Eurozone could have severe spillover impacts.
It thus noted that India was vulnerable to being affected immediately and over a longer duration by real GDP shocks in these advanced economies.
In the case of a Chinese GDP shock, the onset of the impact on India would likely be delayed but substantially more pronounced.
IMF has urged structural reforms in labour and land laws to boost job and infrastructure creation.
What is to be done?
Besides the above, there is a widespread view that the dull domestic consumption demand is the biggest drag on the growth momentum.
It is, therefore, wise to put more money in the hands of consumers, especially those in the rural hinterland, to reinvigorate demand.
Appropriate policy interventions to address the slowdown are crucial at this juncture.
