IMF cuts India's growth forecast, still fastest growing economy

India's growth forecast has been slashed by the International Monetary Fund or IMF for the year 2019-20, however the country still retains its rank as the world's fastest-growing major economy, tying with China. "India's economy is set to grow at 6.1 per cent in 2019, picking up to 7 per cent in 2020. 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 IMF said in its World Economic Outlook (WEO). In its previous outlook released in July for India, IMF had projected 7 per cent growth.

According to IMF report, India retains its rank as the world's fastest-growing major economy with a projected growth rate of 6.1 per cent for the current fiscal year, despite an almost one per cent cut in the forecast.

The report, however, added that growth will be supported by the "lagged effects" of monetary policy easing, a reduction in corporate income tax rates and recent measures to address corporate and environmental regulations.

"In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on-demand," said the IMF in its latest report.

The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.

In comparison, China, whose economy grew at 6.6 per cent in the year 2018, is expected to grow at 6.1 per cent rate in 2019 and 5.8 per cent in 2020.

IMF also reduced the growth forecast for the next fiscal by 0.2 percentage points to 7 per cent. The IMF's outlook comes days after a World Bank report pegged India's growth rate in FY 2019-20 at 6 per cent, and the Reserve Bank of India's latest downward revision to 6.1 per cent.
The IMF's global outlook, also weakened as it projected the world economy to grow at 3.0 per cent in 2019, 0.2 percentage point lower than its previous estimate.

"The world economy is projected to grow at 3.0 percent in 2019 a significant drop from 2017-18 for emerging market and developing economies as well as advanced economies -- before recovering to 3.4 percent in 2020," the IMF's outlook said.

It, however, projected a slightly higher global growth rate for the period of 2021-24.