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The International Monetary Fund (IMF) and the World Bank have within a week lowered their forecasts for India's growth in 2022-23 citing the Russia-Ukraine war and its accompanying energy-related bottlenecks and monetary tightening by various central banks led by the US Federal Reserve. The IMF has cut its projection for India by a total of 1.4 percentage points to 6.8% in its July and October updates to the World Economic Outlook (WEO), while the World Bank rolled back its forecast by 1 percentage point to 6.5% in its latest South Asia Economic Update (SAEU). The Reserve Bank of India (RBI), too, has pared its full-year projection to 7%, although it has raised the estimates for the second half of the year and a step up in the first quarter of 2023-24, a contrarian stance among forecasters that expect India's economy to come off its strong post-pandemic recovery over this year as well as the next.

The IMF expects India's growth rate will slow to 6.1% in 2023-24, as the world economy is likely to grow 2.7% in 2023 after clocking 3.2% growth in 2022. There is a one-in-four chance the world economy will grow less than 2% in 2023, according to the IMF. The prescription for policymakers remains unchanged: bring inflation under control through monetary tightening with aligned fiscal policy that should address pressures on the cost of living. The IMF expects global inflation to peak at 8.8% in 2022 before easing to 4.1% in 2024, indicating the window of high credit costs. Monetary tightening, though, must be on merits with risks attached to both overshooting and undershooting.

For India, the lower growth projections imply a more gradual trajectory of interest rate increases given the growth sacrifice that can be acceptable to its policy establishment. Tax revenue buoyancy affords it the space to make supply-side interventions over food and fuel prices while staying on course for fiscal consolidation. The case for growth revival strengthens as the external demand environment deteriorates and supply shocks abate.