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IMF slashed India’s FY23 GDP forecast from 9% to 8.2%

The International Monetary Fund (IMF) lowered India's economic growth forecast for FY23 from 9 percent in January to 8.2 percent on Tuesday, noting the impact o

Central banks should strengthen their monetary policy to keep inflationary expectations in check amid global supply disruptions, according to the IMF.

  • The impact of rising oil costs on consumer demand and private investments is highlighted by the fund.
  • The IMF anticipates India's current account deficit to expand to 3.1 percent in FY23 as import costs rise due to elevated commodity prices.


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The International Monetary Fund (IMF) lowered India's economic growth forecast for FY23 from 9 percent in January to 8.2 percent on Tuesday, noting the impact of rising oil prices on consumer demand and private investment.

The global agency advocated monetary tightening by central banks in its World Economic Outlook report to hold inflationary expectations in line amid global supply shocks induced by the Ukraine conflict. The IMF warned that the war would "significantly stall global recovery," impede economy, and intensify inflation. The IMF also reduced India's GDP outlook for FY24 from 7.2 percent to 6.9 percent.

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The research claimed that "significant downgrades to the 2022 prediction include... India, reflecting in part weaker domestic demand—as higher oil prices are likely to weigh on private consumption and investment—and drag from reduced net exports."

India's GDP prediction for FY23 has been slashed by 0.8 percentage points, compared to 0.5 percentage points for key emerging and developing Asian nations and 0.4 percentage points for China. Nonetheless, India is expected to remain the fastest-growing major economy in the world, with China's GDP growth slowing to 4.4 percent in 2022 from 8.1 percent in 2021. The IMF's prediction for India in FY23 is  positive so far. In its most recent policy meeting, RBI cuts India's growth forecast for FY23 from 7.8 percent to 7.2 percent. The World Bank trimmed India's GDP forecast for FY23 from 8.7% to 8% last week, down from 8.7% in January.

India's inflation is expected to average 6.1% in FY23, exceeding the RBI's upper acceptance band of 6 percent, before easing to 4.8the current financial year, according to the IMF. India's retail inflation hit a 17-month high of 6.95% in March. In the same month, wholesale inflation increased to a four-month peak of 14.55%, remaining in double figures for nearly a year. Inflation in India is expected to be higher than the IMF's projections of 3.5 percent for developing and rising Asian economies and 2.1 percent for China in 2022. The paper warned that recent supply interruptions in key trading and manufacturing areas like Shenzhen and Shanghai as a result of the rise of covid cases would likely intensify supply shortages elsewhere in the region and beyond.

The IMF expects India's current account deficit to increase to 3.1 percent in FY23 from 1.6 percent in FY22 as import costs rise due to increased commodity and gasoline prices. Brent crude oil prices reached $114 per barrel on Tuesday, compared to approximately $100 per barrel at the beginning of April and a 14-year peak of $139.13 per barrel in March.

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According to the IMF report, monetary tightening by developed nations' central banks may drive inflation in emerging markets due to currency devaluation, forcing more policy rate hikes. To calibrate their responses, monetary authorities should closely monitor the pass-through of growing world prices to domestic inflationary pressures. "Tighter monetary policy will be needed to break the cycle of rising prices pushing up wages and inflation expectations, and rising prices driving up wages and inflation expectations," the IMF stated. While the RBI's monetary policy panel kept rates unchanged earlier this month, it shifted its focus from promoting growth to combating inflation, heightening the risk of higher interest rates.

"We continue to estimate Indian GDP growth in FY23 at 7.2 percent," Aditi Nayar, chief economist at ICRA Ltd, stated, "after supply disruptions caused by the Russia-Ukraine conflict and Chinese lockdowns, as well as the effects of rising prices on personal income and household demand." The main upside is faster capex by the federal and state governments."

The IMF report advocated for governments to provide targeted financial assistance to households in nations where prices are rising rapidly.

Also Read :  NHAI plans to monetize two more highways, which might bring in bids of up to 4,000 crore rupees



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