IMF lowers India's growth estimate for 2020 by 1.2%, trims global forecast too

Owing to the stress in the non-bank financial sector and weak rural income growth, the International Monetary Fund (IMF) on Monday lowered India’s growth estimate to 4.8% in 2019. In a major setback for India, the projected estimate for 2020 was also lowered by 1.2%. Additionally, the IMF also trimmed its global forecast for 2020 as well. 

India’s growth estimate collapses 

IMF had forecast a growth projected at 7% for India in 2020. However, the revision of IMF estimates came as a big blow to India because it witnessed the sharpest decline as compared to any other emerging market to 5.8%. The IMF cited the domestic credit crunch and the performance of NBF sectors, rural economy as the main reasons for India’s downfall. IMF’s India forecast in October 2019 for the year 2021 was pegged at 7.4%, however, the IMF said that after 2019 and 2020’s downfall, the monetary and fiscal stimulus in India’s economy can surge India’s growth rate to 6.5% by 2021. 

Read: CPI data shows higher consumer inflation rates pegged at 7.35% in Dec against 5.54% in Nov

IMF’s cuts in global growth forecast 

IMF’s 2020 forecast for global growth was also cutback owing to several reasons, including India and other emerging markets’ performance. However, the main reason for the trim in the global forecast was the US-China trade deal. The IMF said that the US-China trade deal can reduce the trade and manufacturing activity soon.  

The IMF trimmed its estimate for 2020 to 3.3% and changed the 2019 estimate to 2.9%. They said that this was the slowest pace of growth since the recession in the last decade. However, IMF reiterated that the growth is expected to pick up pace in 2021 and projected it to 3.4%.  

Read: Budget 2020: Swamy pinpoints economy abnormality, quips 'takes brains to fail like this'

Inflation worsens, shows CPI data 

The Consumer Price Index (CPI) data for December 2019 released by the National Statistical Office (NSO) showed the consumer inflation worsened to 7.35% as compared to 5.54% in November - an alarming rise given the RBI's self-mandate to keep it within the 4%(+-2) band. Following the trend, this became the third month in a row to have higher rates of consumer prices. The consumer inflation rate also defied the Reserve Bank of India's medium-term target of 4%.

Read: Indian Economy registers 4.5% GDP growth rate in Q2; down from 5% in Q1; Full release here

Centre's GDP estimate for 2019-20   

According to the first advance estimates released by the Centre on January 7, India's real GDP (Gross Domestic Product) growth during the financial year 2019-2020 is expected at 5% as compared to last year's 6.8%. This estimate is in line with the Reserve Bank of India's (RBI) own revised estimate in December. The economy grew by 4.5%, the lowest in six years, in the second quarter (July-September) of this fiscal in weakening from the previous quarter's 4.8 per cent. 

Read: Centre's advance estimate peg 2019-20 GDP growth at 5%, down from 6.8%; Mfg at 2%