Another cut in IMF's India GDP forecast; below-expected output, more muted external demand cited as reasons

The International Monetary Fund has cut India’s FY23 GDP forecast to 6.8% from its earlier projection of 7.4%.

IMF's projected numbers are lower than Reserve Bank of India's forecast for the Indian economy. The RBI had on September 30 revised its forecasts down by 20 basis points to 7 percent.

For FY24, India’s GDP growth is expected to slow further to 6.1%, the IMF said. As for global growth, the projected number is 3.2% for 2022 and 2.7% in 2023.


The readjusted forecast for India is based on "available information on the authorities’ fiscal plans, with adjustments for the IMF staff’s assumptions," the IMF's World Economic Outlook report said.

The IMF attributed the latest paring of forecast to below-expected output in the second quarter and more subdued external demand.

"The outlook for India is for growth of 6.8 per cent in 2022––a 0.6 percentage point downgrade since the July forecast, reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand––and 6.1 percent in 2023, with no change since July," it said.

This is the third downward revision for India. FY23 GDP forecast was downgraded to 7.4% in July from 8.2% estimated in April keeping in view negative changes in external conditions, besides rapid monetary policy tightening.

Growth projection was cut in April to 8.2% from 9% owing to higher commodity prices.

The report added, "IMF and Indian presentations differ, particularly regarding disinvestment and license-auction proceeds, net versus gross recording of revenues in certain minor categories, and some public sector lending. Starting with FY2020/21 data, expenditure also includes the off-budget component of food subsidies, consistent with the revised treatment of food subsidies in the budget. The IMF staff adjusts expenditure to take out payments for previous years’ food subsidies, which are included as expenditure in budget estimates for FY2020/21."

IMF's latest projection for the Indian economy is in sync with other global agencies. Last week, the World Bank had slashed its India forecast for 2022-23 to 6.5% from 7.5% earlier.

According to the report, economies globally are seeing a broad-based and sharper-than-expected slowdown, with inflation in many countries at decadal highs.

"The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook," it said.

As per IMF forecasts, global growth is set to moderate from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023. "This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic," the report noted.

With respect to the global economy, IMF called rising price pressures the most immediate threat to current and future prosperity "by squeezing real incomes and undermining macroeconomic stability." It noted central banks' efforts at cutting these pressures by tightening policy.

The report, however, cautioned against over-tightening. "Over-tightening risks pushing the global economy into an unnecessarily harsh recession," it said.

It also touched upon the widening debt crisis in emerging economies, which it said could weigh heavily on global growth and "precipitate a global recession."