Forecasting a growth rate of 6.8% and 6.1% respectively for the current and next fiscal year, the International Monetary Fund (IMF) said on December 23, 2022 that India was navigating in a “very difficult “.
Choueiri Nada, IMF mission chief in India, in his virtual interaction with reporters, reiterated that India continues to be the bright spot in an otherwise bleak global economic scenario.
“We see the economy continuing to grow quite vigorously in this fiscal year,” Ms Nada said as the international financial body released the report of its annual consultations with India.
According to the report, growth is expected to moderate, reflecting a less favorable outlook and tighter financial conditions.
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Real GDP is expected to grow by 6.8% and 6.1% in fiscal years 2022/23 and 2023/24 respectively, according to the IMF’s India report.
These projections are much better than what they projected earlier, Ms. Nada said.
“In fact, according to our projections, India contributes 0.5% to global growth this year and next,” she said.
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“But, of course, there are significant risks and for having asked about this, we find that the risks are mainly on the downside and mainly come from external factors. Perhaps the biggest risk is a more pronounced global slowdown than expected,” she said.
“We are seeing a slowdown in the global economy next year. But there are downside risks to the speed of the slowdown, and it could be much more pronounced than we expected in the report. will affect India through trade and financial channels,” Ms. Nada said.
She said the IMF also continues to see the war in Ukraine unresolved and could escalate and affect trade and commodity prices.
“You’ve only seen one inflation so progress in inflation could be reversed and that’s also a significant risk,” she noted.
According to the IMF, in the medium term, reduced international cooperation can further disrupt trade and increase financial market volatility.
At the national level, rising inflation may further dampen domestic demand and impact vulnerable groups.
On the positive side, however, the successful implementation of far-reaching reforms or the larger-than-expected dividends from remarkable advances in digitalization could boost India’s medium-term growth potential.
“The other key message of the report is that India is navigating a very challenging external environment. seen this year be justified,” Ms. Nada said.
Fiscal policy should prioritize medium-term consolidation while staying within the overall envelope, ensuring continued high-quality spending on education, health and infrastructure, he said. she declared.
“We fully support the government’s infrastructure plan, which is important to provide a medium-term foundation for growth. In the report, we also call for credible and clearly communicated medium-term consolidation,” she said. .
This should be anchored on strong revenue mobilization and additional spending efficiency, the IMF official said.
On the monetary policy side, the IMF supports the policy measures the RBI has taken to address high inflation and believes that further monetary policy tightening needs to be carefully calibrated and communicated to balance inflation and growth, she said.
Regarding the financial sector, the report notes the strength of soundness and credit indicators with the economy emerging from the pandemic crisis.
At the same time, the report also documents the risks related to the tightening of financial conditions that the financial sector faces.
“In this regard, we believe that these issues could be addressed through prudential regulatory measures,” Ms. Nada said.
The IMF, in its report, also encouraged India to continue its progress in structural reforms in the financial sector, such as the implementation of the insolvency and bankruptcy code, the operationalization of the company national asset restructuring plan and further progress in bank privatization.
“We welcomed the important progress that the authority has made on its agenda, in particular the remarkable advances in digitization. The strong pressure to increase the share of renewable energy in energy production and the recent trade agreements,” said Ms. Nada.