IMF hikes India's growth forecast to 6.3 per cent

India's economic growth remains strong, with a projected 6.3 per cent growth in both 2023 and 2024. The optimistic forecast for 2023 reflects a notable 0.2 percentage point upward revision, mainly due to stronger-than-expected consumer spending from April to June, said the International Monetary Fund in its World Economic Outlook report.

The growth forecast by the IMF in 2023-24 aligns with the projection made by the World Bank in its India Development Update on October 3. The IMF's decision to revise upward the GDP growth for India in 2023-24 is a response to the robust 7.8 per cent growth observed in the quarter ending June 2023. However, it's important to note that the annual growth figure remains below the 6.5 per cent projection made by the RBI's Monetary Policy Committee.

The IMF has maintained its 2023 global growth forecast at 3.0 per cent. It has increased its GDP projection for the United States this year by 30 basis points to 2.1 per cent but has lowered China's growth outlook by 20 basis points to 5.0 per cent. The IMF expressed concerns about the potential deepening of China's property sector crisis and its potential global implications, particularly for countries reliant on commodity exports.

Looking ahead to 2024, the IMF has set the global growth rate at 2.9 per cent, which is 10 basis points lower than its previous estimation.

In its current report, the multilateral funding agency highlighted that the recovery from the Covid 19 pandemic and the ongoing situation with Russia's invasion of Ukraine are progressing slowly and unevenly. Despite some economic resilience seen earlier this year, including post-lockdown rebounds and progress in reducing inflation, there is still uncertainty, especially in emerging markets and developing economies. The IMF noted that significant disparities in economic performance are emerging among different regions.

Meanwhile, after the IMF report, Prime Minister Narendra Modi said that India is a global bright spot, a powerhouse of growth and innovation.

Quoting IMF on X, the PM wrote, “Powered by the strength and skills of our people, India is a global bright spot, a powerhouse of growth and innovation. We will continue to strengthen our journey towards a prosperous India, further boosting our reforms trajectory.”

The IMF's projection indicates a gradual reduction in global inflation, declining from 8.7 per cent in 2022 to 6.9 per cent in 2023 and further to 5.8 per cent in 2024. In the case of India, the IMF anticipates Consumer Price Index (CPI) inflation to average 5.5 per cent in FY24, slightly higher by 10 basis points compared to the RBI's forecast. For FY25, the IMF's projection stands at 4.6 per cent, in contrast to the RBI's projection of 4.3 per cent.

The IMF highlights that near-term inflation expectations have risen, potentially leading to ongoing core inflation pressures due to tight labor markets. This could necessitate higher policy rates than initially expected. The agency also points out that additional food and energy price spikes could result from climate and geopolitical shocks.

Furthermore, the agency emphasizes the importance of central banks globally in restoring ‘price stability’ while utilizing policy tools to alleviate potential financial stress when necessary. It underlines that effective monetary policy frameworks and communication are crucial for maintaining expectations and minimizing the economic impact of disinflation.