IMF raises India’s growth forecast to 6.3%

Notwithstanding uncertainty triggered by Israel-Hamas conflict, International Monetary Fund (IMF) has upped India’s economic growth forecast by 20 basis points to 6.3 per cent for the current fiscal (FY24) on account of better consumption demand. However, there is no change in the projection for FY25 which has been pegged at 6.3 per cent.

Indian economy grew by 7.2 per cent in FY23.

“Growth in India is projected to remain strong, at 6.3 percent in both 2023 and 2024, with an upward revision of 0.2 percentage point for 2023, reflecting stronger-than-expected consumption during April-June,” IMF said in its annual publication, World Economic Outlook (WEO), released on Tuesday on the eve of Fund-Bank (IMF and World Bank) meeting taking place at Marrakech, Morocco.

In its projection made in April this year, IMF pegged the growth rate at 5.9 per cent which it upped in July to 6.1 per cent on the back of a strong growth of 7.8 per cent during the April-June quarter.

Earlier this month, World Bank maintained growth projection for current fiscal at 6.3 per cent on account of good investment and consumption.

The projections of IMF and World Bank are still lower than the estimates of the Centre and the Reserve Bank of India which pegged India’s GDP growth at 6.5 per cent.

While the projections of the Organization for Economic Cooperation and Development (OECD), Fitch Ratings and ADB are similar to the government’s projections, it is higher than S&P Global Ratings’ estimate of 6 per cent.

India has a share of 7.3 per cent in the World Economy and 12.5 per cent in emerging markets and developing economies.

World Outlook

On world economy, WEO lowered the growth projections for 2023 and 2024.

“According to our latest projections, world economic growth will slow from 3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, a 0.1 percentage point downgrade for 2024 from July. This remains well below the historical average,” Pierre-Olivier Gourinchas, Economic Counselor and Director of the Research Department, said in a blog post.

He further said that the global economy continues to recover from the pandemic, Russia’s invasion of Ukraine and the cost-of-living crisis.

In retrospect, the resilience has been remarkable. Despite war-disrupted energy and food markets and unprecedented monetary tightening to combat decades-high inflation, economic activity has slowed but not stalled. Even so, growth remains slow and uneven, with widening divergences, he added.

“The global economy is limping along, not sprinting,” he noted.

Inflation issue

On overall price situation, the blog mentioned that the headline inflation continues to decelerate, from 9.2 percent in 2022 on a year-over-year basis, to 5.9 percent this year and 4.8 percent in 2024.

Core inflation, which excludes food and energy prices, is also projected to decline, albeit more gradually, to 4.5 percent next year. Most countries aren’t likely to return to inflation target until 2025.

The blog noted that while some of the extreme risks—such as severe banking instability—have moderated since April, the balance remains tilted to the downside.

“China’s real-estate crisis could intensify, posing a complex policy challenge. Restoring confidence requires promptly restructuring struggling property developers, preserving financial stability, and addressing the strains in local public finance. If China’s real estate prices decline too rapidly, the balance sheets of banks and households will worsen, with the potential for serious financial amplification,” the blog observed.

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