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The International Monetary Fund (IMF) recently revised India‘s growth projections, lowering it to 5.9% for the year 2023-24. However, despite the dip, the Indian economy continues to be the fastest-growing in the world, according to the World Economic Outlook figures.
In this article, we delve deeper into the IMF’s assessment of the Indian economy and what it means for the country’s future.
India: A “Very Strong Economy”
Daniel Leigh, the IMF division chief, expressed his faith in the Indian economy, stating that it is a “very strong economy” and one of the bright spots in the global economy. The country’s growth rate for 2022 is 6.8%, which is moderating down to 5.9%, with a -0.2 revision compared to January. Leigh explains that this dip is due to a set of historical revisions and that the country’s growth rate is still very high.
“We realize that 2020-2021 has been actually a lot better than we thought, and so actually there’s less room for catching up. And that pent-up demand from consumers that were informing our previous forecast is, therefore, going to be less because they’ve already had more catching up before. So that’s why there’s a downward revision this year. Then we go up to 6.3 next year again, a very strong economy which is necessary to allow India to continue to converge towards higher living standards and create those jobs that are necessary,” added Leigh.
IMF’s Projections for Inflation and Growth
The IMF projects India‘s inflation to slow down to 4.9% in the current year and further to 4.4% next fiscal year. However, the growth forecast is lower than that of the Reserve Bank of India (RBI), which predicted 7% GDP growth for FY 2022-23 and 6.4% in the ongoing fiscal that started on April 1.
While the international lender has flagged concerns about inflation, debt, and risks to the financial sector from rising interest rates, it warns that if banks cut lending further, the global output will reduce by another 0.3 percentage point in 2023. “Despite the fillips from lower food and energy prices and improved supply-chain functioning, risks are firm to the downside with the increased uncertainty from the recent financial sector turmoil,” the report said.
The IMF projects growth to bottom out at 2.8% in 2023, picking up to 3% in 2024. Inflation is expected to stay elevated at 7% for the rest of the year, before declining to 4.9% next year.
Comparison with Other Countries
China‘s growth rate is projected to be 5.2% in 2023 and 4.5% in 2024 against its growth rate of three percent in 2022. The US’s growth forecast for 2023 is 1.6%, France‘s 0.7%, while Germany and the UK are a dismal -0.1% and -0.7%, respectively.
Most countries will avoid a recession in 2023 despite the COVID pandemic lingering and tightening financing conditions as the Russia-Ukraine war continues.
Conclusion
Despite a dip in the growth projection, India’s economy continues to be a bright spot in the global economy. The IMF’s projections for India’s inflation and growth suggest that the country is still on track to converge towards higher living standards and create more jobs.