The International Monetary Fund on Tuesday lowered India’s growth rate projection to 6.1% for the 2019-’20 financial year. In July, it had revised India’s growth forecast from 7.3% to 7%.

“India’s economy is set to grow at 6.1% in 2019, picking up to 7% in 2020,” the IMF said its latest World Economic Outlook projections. “The downward revision relative to the April 2019 WEO of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand.”

The world body said growth would be supported by “the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory.”

The International Monetary Fund report said India’s economy decelerated further in the second quarter because of “sector-specific weaknesses”. It highlighted the crisis in the automobile sector, real estate, and the “lingering uncertainty” about non-banking financial companies as the reasons for the slowdown.

“In India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence,” said the report. “A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term.”

The monetary fund suggested subsidy-spending rationalisation, land reforms and tax-base enhancing measures.

The revised projections come at a time when the economy is facing a sustained decline in growth. India’s GDP growth rate slipped to a six-year low of 5% in the April-June quarter – the fourth straight quarter of slowdown.

On Sunday, the World Bank revised India’s growth rate projection to 6% for the 2019-’20 financial year. However, it said if the monetary policy remains accommodative, the country will gradually recover to 6.9% in 2021 and 7.2% in 2022. On October 4, the Reserve Bank of India had revised India’s projected growth rate for 2019-’20 to 6.1%. The Asian Development Bank had cut its growth forecast from 7% to 6.5% in September.

Former Reserve Bank of India Governor Raghuram Rajan last week cautioned that the fiscal deficit concealed a lot of problems and may push the economy to a “worrisome situation”. Rajan said the uncertainty about the situation at higher levels had caused severe distress in the economy.

Global growth

Meanwhile, the global crisis lender said global growth this year would be at its slowest pace since the 2008-’09 financial crisis because of the trade war between India and China. The monetary fund said the world economy would grow only 3%, down from 3.2% it had predicted in July.

“With a synchronised slowdown and uncertain recovery, the global outlook remains precarious,” International Monetary Fund Chief Economist Gita Gopinath said in her introduction to the latest forecast, according to AFP. “At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions.”

Gopinath said major economies such as Brazil, India, Mexico, Russia and South Africa were slowing down because of “idiosyncratic reasons” but were expected to recover in 2020.

“A notable feature of the sluggish growth in 2019 is the sharp and geographically broad-based slowdown in manufacturing and global trade,” she added.

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