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On Tuesday, the International Monetary Fund(IMF) raised India’s economic growth forecast for the fiscal year 2023-24 by 20 basis points to 6.1 percent. The Upward revision is attributed to India’s exceptional growth momentum in the March quarter of the fiscal year 2022-23, surpassing expectations.
The IMF’s “World Economic Outlook” (WEO) report, updated in April, indicated a 0.2 percentage point increase from its previous projection of 5.9%, highlighting the positive impact of robust domestic investment on India’s economic outlook.
This upward revision to India’s growth forecast for the fiscal year 2023-24 came as a reversal to its earlier prediction from April when it had cut the projection by 20 basis points to 5.9%.
Addressing the media following the release of the WEO update report, Danish Leigh, the division chief of the Research Department at the IMF, emphasized India’s robust economic growth, asserting that it accounts for one-sixth of the total global growth this year. Leigh also projected that Inflation in India would remain within the targeted range, a scenario IMF expects to unfold.
IMF Cautions:- India’s Rice Export Ban
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The IMF has expressed concerns regarding India’s ban on the export of non-basmati white rice, stating that such restrictions are likely to worsen food price volatility worldwide and could potentially lead to retaliatory measures.
IMF highlighted that inflation remains high, impacting the households’ purchasing power negatively. In response to inflation, Central banks have implemented policy tightening, leading to increased borrowing costs and constraints on economic activity. The high-interest rates are still affecting the financial system resulting in reduced credit supply.
GDP projections:- IMF Vs. RBI
While the Indian Government and RBI hold a more optimistic view of India’s GDP growth, the IMF’s outlook is more cautious, aligning with some private sector economists. They anticipate India’s growth to slow down to under 6 percent in 2023-24 due to global monetary policy tightening in response to high inflation.
However, World Bank President Ajay Banga expressed confidence in India’s growth prospects during a recent G20 meeting. The IMF’s forecast for 2024-25 remains unchanged, projecting India’s GDP to grow at 6.3 percent.
IMF’s Global Growth Outlook
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The IMF upgraded its global forecast by 20 basis points to 3 percent for 2023 with positive revisions for the USA(20 bps) and UK (70 bps). While the UK’s economy is now expected to avoid contraction, Germany remains the only major economy facing a recession with a projected 0.3 percent contraction in 2023. The IMF’s report noted that recent resolutions of the US debt ceiling standoff and actions taken to stabilize US and Swiss banking reduced the immediate risk of financial turmoil.
However, the IMF issued warnings that high inflation may persist and possibly increase if further shocks occur such as an escalation of war in Ukraine or extreme weather events.
The IMF indicated that the Chinese economy’s recovery, which initially received a boost from reopening measures, is now losing momentum. Despite this, the IMF maintained its growth projection for the country at 5.2 percent for 2023. The real estate sector’s persistent weakness and elevated youth unemployment rate point to labor market vulnerabilities in China.