The International Monetary Fund on Tuesday slashed India’s economic growth forecast for 2022-’23 to 7.4% from its April estimate of 8.2%.
In its World Economic Outlook Update July 2022 report, the IMF cited vulnerability of the Indian economy to external shocks and rapid monetary policy tightening as reasons behind the change in its forecast.
The financial institution also cut India’s growth forecast for the next fiscal year (2023-’24) by 0.8 percentage points to 6.1%.
However, for this financial year, India remained the second fastest growing economies across the world behind Saudi Arabia, which is likely to grow by 7.6% in 2022-’23.
The International Monetary Fund has also cut the global growth outlook to 3.2% from the estimated 3.6% in April.
“The tentative global recovery in 2021 has been followed by increasingly gloomy developments in 2022 because of tighter financial conditions, a worse-than-anticipated slowdown in China, and negative spillovers from the war in Ukraine,” the IMF said in its report.
In July, Japanese financial holding agency Nomura had lowered India’s growth forecast for the current fiscal year to 4.7% from its previous estimate of 5.4%. The agency cited fear of recession, rising interest rates, monetary policy tightening and inflation for its reduced projection.
India’s retail inflation has stayed above the Reserve Bank of India’s upper tolerance level of 6% for six straight months till June.The price-rise indicator had touched an eight-year-high of 7.79% in April.
In June, the Reserve Bank of India’s monetary policy committee raised the repo rate by 50 basis points to 4.90% in an attempt to control inflation. This was the second hike in the repo rate within five weeks. The repo rate is the interest rate at which the central bank lends to commercial banks.
In June, the United States-based credit rating agency Fitch also lowered India’s growth forecast for the current fiscal year to 7.8% from its previous estimate of 8.5% made in March. In the same month, the World Bank had lowered India’s growth forecast for the current fiscal year to 7.5% from its earlier estimate of 8% announced in April.
The world may be heading for recession: IMF
International Monetary Fund’s Chief Economist Pierre-Olivier Gourinchas wrote in a blog on Tuesday that the global economic output has depreciated since April and that the world could be “teetering on the edge of a global recession”.
According to the IMF report released on Tuesday, the global output is expected to slow down at 2.9% in 2023 because of the increased interest rates issued by central banks to contain inflation. Other reasons include the European Union banning Russian oil imports in the light of Moscow’s attack on Kyiv and financial tightening around the world.
The growth is further dragged by the high debts incurred by developing economies and high global borrowing rate, Bloomberg reported. According to the World Bank estimate, about 60% of the world’s 75 poorest countries are in or at risk of debt distress, which is spreading to middle-income countries.
“What is really important here is that in a sense there is one overwhelming priority at this point, and it is to bring back price stability in advanced economies and in emerging markets as well, that many of them have seen elevated price pressure,” he said.
The International Monetary Fund report also suggests tighter monetary policy as the priority to control inflation. “This will inevitably have real economic costs, but the delay will only exacerbate them,” it said.