IMF forecasts on Indian Economy

The International Monetary Fund (IMF) keeps a close eye on the international monetary system and global economic trends in order to identify risks and make policy recommendations for development and financial stabilization.

According to the IMF's new World Economic Outlook recent update, India's GDP growth will be 8.2% in FY2022-23 and 6.0% in FY2023-24. The projections have been reduced from the January update due to the uncertainty of the Ukrainian war, but they still indicate positive growth. This, on the other hand, is significantly better than its predictions for other big economies such as the United States, China, and Japan. According to the Reserve Bank of India's most recent forecast, real GDP growth in FY2022-23 will be substantially lower at 7.2%.

The multilateral body expects disruptions caused by the Russia-Ukraine conflict are expected to create a serious setback to global recovery.

"Notable downgrades to the 2022 prediction include Japan and India," the IMF noted, "reflecting in part weaker internal demand as higher oil prices are likely to weigh on private consumption and investment as well as a drag from lower net exports."

Despite a minor uptick in investment demand, investment as a percentage of GDP is expected to remain lower than it was in FY2018-19. Government expenditure will be a significant influence, as the fiscal deficit, which includes state deficits, is forecast to remain high at 9.9% of GDP in FY2022-23 and 9.1% the following year. However, consumption, supported by robust export volumes, is likely to provide the most of the boost.

High growth, on the other hand, is expected to boost imports of goods and services, which are expected to rise anyway due to rising commodity and fuel prices. As a result, the IMF expects that India's current account deficit will be 3.1% in the current fiscal year. This should cause the rupee to fall in value, contributing to inflationary pressures.

Despite India's high crude oil costs, the IMF appears to have faith in the Indian economy's long-term viability. It is, in fact, far more optimistic than the RBI. Citing the impact of high oil prices on consumer demand and private investments combined with the ill effects of high inflation, the IMF, has slashed India's economic growth forecast to 8.2% for FY23 from 9% but even after this rate of growth, India is projected to be world's fastest-growing major economy.

Thank you.

Regards,

Kashish Hazari,

Kautilya,

IBS Mumbai.