The International Monetary Fund (IMF) has cut its gross domestic product (GDP) growth forecast for India for the current financial year by 80 basis points to 7.4 percent.
A similar downgrade has been made to the growth forecast for FY24, which now stands at 6.1 percent as against 6.9 percent earlier.
"For India, the revision reflects mainly less favourable external conditions and more rapid policy tightening," the IMF said on July 26 in an update to its World Economic Outlook report.
Russia's invasion of Ukraine in late February disrupted supplies of crucial commodities, pushing up prices globally.
Consequently, key central banks in the developed world, such as the US Federal Reserve, have begun tightening their monetary policies in earnest to cut down multi-decade high inflation. This has exerted further pressure on the Indian rupee, which has hurtled to multiple record lows in recent weeks and last week breached the 80-per-dollar mark for the first time.
These forces, in combination with already high domestic inflation, have pushed the Reserve Bank of India (RBI) to raise interest rates rapidly.
So far in FY23, the Indian central bank has increased the policy repo rate by 90 basis points to 4.9 percent, with more rate hikes seen on the horizon.The growth downgrade for India, along with those for China and the US, was largely responsible for the IMF lowering the global growth forecast for the calendar year 2022 by 40 basis points to 3.2 percent and by 70 basis points to 2.9 percent for 2023. One basis point is one-hundredth of a percentage point.
|KEY GROWTH FORECASTS (CHANGE FROM PREVIOUS FORECAST IN PARENTHESIS)|
|World||3.2% (-40 bps)||2.9% (-70 bps)|
|United States||2.3% (-140 bps)||1.0% (-130 bps)|
|Euro area||2.6% (-20 bps)||1.2% (-110 bps)|
|Japan||1.7% (-70 bps)||1.7% (-60 bps)|
|United Kingdom||3.2% (-50 bps)||0.5% (-70 bps)|
|China||3.3% (-110 bps)||4.6% (-50 bps)|
|Russia||-6.0% (+250 bps)||-3.5% (-120 bps)|
|Brazil||1.7% (+90 bps)||1.1% (-30 bps)|
"With growth near 3 percent in 2022–23, a decline in global GDP or in global GDP per capita—sometimes associated with global recession—is not currently part of the baseline scenario," the IMF said.
However, the IMF sees global growth slowing down to 1.7 percent in the last quarter of 2022, which it said is indicative of "significant weakening of activity in the second half of 2022".
The multilateral agency's latest growth forecast for India is only marginally higher than that of the RBI's projection of 7.2 percent. However, economists see the risk of India's GDP growth falling below 7 percent this fiscal.
In an interview to Moneycontrol earlier this month, former chief statistician of India Pronab Sen said India would be lucky if its GDP grows by 6 percent in FY23. Before that, Nomura cut its growth forecast for India for 2023 to 4.7 percent from 5.4 percent.Some economists see the RBI lowering its growth forecast when the monetary policy committee will announce its interest rate decision on August 5 at the conclusion of its three-day meeting.