IMF LOWERS INDIA GROWTH ESTIMATE TO 4.8% FOR 2019
Context: The International Monetary Fund (IMF) on January 20th lowered growth estimate for India to 4.8 per cent for 2019, citing stress in the non-bank financial sector and weak rural income growth as the major factors for the downward revision.
- The IMF cut its India growth forecast while providing an update on the global economy ahead of the start of the World Economic Forum (WEF) annual summit.
- Growth in India slowed sharply owing to stress in the non-bank financial sector and weak rural income growth.
- China’s growth has been revised upward by 0.2 per cent to 6 per cent for 2020, reflecting the trade deal with the United States.
- India’s growth is estimated at 4.8 per cent in 2019, projected to improve to 5.8 per cent in 2020 and 6.5 percent in 2021 (1.2 and 0.9 percentage point lower than in the October WEO), supported by monetary and fiscal stimulus as well as subdued oil prices.
- The pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico.
- The Indian government should avoid a fiscal stimulus to boost the sagging economy and, instead, opt for an easier monetary policy.
- In the near-term, given the cyclical weakness of the economy, monetary policy should maintain an easing bias, at least until the projected recovery takes hold.
- Fiscal stimulus should be avoided, given that the fiscal space is at risk and revenue losses from the recent corporate income tax rate cut should be offset.
- In the event of a more severe economic slowdown than currently envisaged, any fiscal stimulus should be temporary, focusing on measures to boost near-term growth, such as immediate investment expensing or public infrastructure spending.
The IMF has also suggested a package of reforms to boost inclusive growth which will help spur productivity and employment.
The three pillars of reform are
- Ongoing clean-up of bank balance sheets complemented by strengthening of PSB governance and regulation, and oversight of NBFCs
- A fiscal consolidation anchored to reduce general government debt toward 60% of GDP as recommended by the FRBM Review Committee
- Reform of the markets to enhance labour market flexibility, formalizing the economy, improving employment opportunities, enhancing competition and reducing the scope for corruption.
INTERNATIONAL MONETARY FUND
- The International Monetary Fund(IMF) is an international organization headquartered in Washington, D.C., consisting of 189 countries.
- It works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce povertyaround the world while periodically depending on World Bank for its resources.
- Formed in 1944 at the Bretton Woods Conferenceprimarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system.
- It now plays a central role in the management of balance of paymentsdifficulties and international financial crises.
- Countries contribute funds to a pool through a quota system from which countries experiencing balance of paymentsproblems can borrow money.