Washington : India is now in the midst of a significant economic slowdown, the International Monetary Fund (IMF) has said, urging the government to take urgent policy actions to address the current prolonged downturn.
In its report released on Monday, the IMF Directors noted that India’s rapid economic expansion in recent years has lifted millions of people out of poverty. However, in the first half of 2019, a combination of factors led to subdued economic growth in India.
“The issue in India currently is the growth slowdown. We still believe it is mostly cyclical, not structural… because of the financial sector issues, we think the recovery will be not as quickly as we thought earlier. That’s the main issue,” Ranil Salgado, Mission Chief for India in the IMF Asia and Pacific Department said in an interview as it released its annual staff report on India.
With risks to the outlook tilted to the downside, the IMF Directors called for continued sound macroeconomic management. They saw an opportunity with the strong mandate of the new government to reinvigorate the reform agenda to boost inclusive and sustainable growth, the report said. The staff report was done in August when the IMF was not fully aware of India’s current economic slowdown.
“India is now in the midst of a significant economic slowdown,” Salgado told reporters over phone.
Growth in the second quarter of FY 2019/20 came in at a six-year low of 4.5% (y/y), and the composition of growth indicates that private domestic demand expanded by only 1% in the quarter. Most high-frequency indicators suggest that weak economic activity has continued into December, he said.
Salgado attributed this to the abrupt reduction in non-bank financial companies’ (NBFC) credit expansion and the associated broad-based tightening of credit conditions appears to be an important factor and weak income growth, especially rural, has been affecting private consumption. Private investment has been hindered by the financial sector difficulties and insufficient business confidence, he said. (Agencies)
