IMF keeps its India economic growth projection for FY22 unchanged at 9.5%

Says India will be the fastest-growing major economy in the world again

The International Monetary Fund (IMF) has retained its projection for India’s economic growth in the current financial year at 9.5 per cent, even as it has moderately scaled down its forecast for the world economy during 2021 by 10 basis points to 5.9 per cent in view of worsening Covid dynamics and supply disruptions. 

In its World Economic Outlook (WEO), the IMF has maintained India's gross domestic product (GDP) estimates for next financial year at 8.5 per cent, unchanged from its July projections. 

The WEO, titled ‘Recovery During a Pandemic Health Concerns, Supply Disruptions, and Price Pressures’, has forecast world economic growth at 4.9 per cent for 2022, the same as earlier. 

Meanwhile, the IMF has cut its China GDP growth projections for 2021 and 2022 by 10 basis points each – to eight and 5.6 per cent, respectively. 

With this, India will again get the tag of the fastest-growing large economy in the world, both in FY22 and FY23. In 2020, China’s was the only major economy that had registered growth. While it had grown 2.3 per cent last year, India's had contracted by 7.3 per cent.

The Fund has also projected India’s consumer price index-based inflation rate to stand at 5.6 per cent during the current financial year from 6.2 per cent last year. For the next financial year, it has forecast a further decline to 4.9 per cent.

Earlier, two other bodies – the monetary policy committee (MPC) of the Reserve Bank of India and Standard and Poor's (S&P) – had retained India's growth projections for FY22 at 9.5 per cent. 

In its policy review last week, the MPC had also reduced its retail inflation projection for FY22 to 5.3 per cent from its earlier prediction of 5.7 per cent. Also last week, the World Bank (WB) had kept its projection for India’s economic growth in 2021-22 at 8.3 per cent. However, Fitch Ratings had lowered its projection to 8.7 per cent from its earlier forecast of 10 per cent in view of the impact of the second Covid-19 wave in the country. 

Outside of China and India, emerging and developing Asia has been downgraded slightly, as the pandemic has picked up, the IMF has said. 

The IMF has also said that the current account balance of India will slip into a deficit of one per cent of GDP this financial year, as against a surplus of 0.9 per cent last year. The deficit will further widen to 1.4 per cent next financial year. 

On global economic growth, the IMF has said the downward revision for 2021 reflects a downgrade for advanced economies — in part due to supply disruptions — and for low-income developing countries, largely due to worsening pandemic dynamics. 

It has said that employment is generally expected to continue lagging the recovery in output. The Fund has also said that headline inflation rates have increased rapidly in the US and in some emerging-market and developing economies. In most cases, rising inflation reflects pandemic-related supply-demand mismatches and higher commodity prices when compared with their low base from a year ago. 

It said added that the balance of risks for growth is tilted to the downside, while inflation risks are skewed to the upside.

IMF Chief Economist Gita Gopinath said recent developments had made it abundantly clear that the pandemic was not over anywhere until it was over everywhere. "If Covid-19 were to have a prolonged impact into the medium term, it could reduce global GDP by a cumulative $5.3 trillion over the next five years relative to our current projections. It does not have to be this way," she said. 

The global community must step up efforts to ensure equitable vaccine access for every country, overcome vaccine hesitancy where there was adequate supply, and secure better economic prospects for all, Gopinath said. 

The IMF highlighted that grants from the Indian government to vaccine producers had encouraged the development of Covid-19 vaccines. 

The Fund has cautioned that rapid spread of the Delta variant of coronavirus and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome. It has said policy choices have become more difficult, confronting multidimensional challenges — subdued employment growth, rising inflation, food insecurity, the setback to human capital accumulation, and climate change — with limited room to manoeuvre.