The International Monetary Fund (IMF) has lowered India's growth forecast by 8 percentage points to 8.2% in FY23 as compared to 9% growth projected in January 2022. Russia’s invasion of Ukraine and the global sanctions against it are largly to blame. However, factors like high inflation due to fuel and food price rise will also play a key role in dragging the economic growth back, the IMF said.
For FY24, the country's GDP growth forecast has been lowered to 6.9%, 2 percentage points down comapared to 7.1% projected earlier.
The IMF report comes days after the World Bank did a downward revision in India's GDP for 2022-23 to 8% from 8.7% projected earlier. Both of these estimates are higher than that of RBI's latest GDP estimates, which in its Monetary Policy Report for April 2022, projected India's real GDP growth at 7.2% in 2022- 23.
In the current issue, titled World Economic Outlook: War Sets Back the Global Recovery, the IMF has said two countries with most notable downgrades are India and Japan. "Notable downgrades to the 2022 forecast include Japan (0.9 percentage point) and India (0.8 percentage point), reflecting in part weaker domestic demand — as higher oil prices are expected to weigh on private consumption and investment — and a drag from lower net exports," the report said.
The IMF said the global economic prospects have worsened significantly since its last World Economic Outlook forecast in January. "At the time, we had projected the global recovery to strengthen from the second quarter of this year after a short-lived impact of the Omicron variant," the global body said.
The reason for deteriorating outlook has been attributed to "Russia’s invasion of Ukraine — causing a tragic humanitarian crisis in Eastern Europe — and the sanctions aimed at pressuring Russia to end hostilities".
The IMF said beyond the immediate humanitarian impacts, the war will severely set back the global recovery, slowing growth and increasing inflation even further.
Global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update. "The downgrade largely reflects the war’s direct impacts on Russia and Ukraine and global spillovers," the IMF report said.
The two warring nations -- Russia and Ukraine -- will see large GDP contractions in 2022, the IMF said, adding that the severe collapse in Ukraine is a direct result of the invasion, destruction of infrastructure, and exodus of its people.
The Russian economy faces major contraction because of the sanctions with a severing of trade ties. This will greatly impair its domestic financial intermediation, and loss of confidence, IMF said. Both the countries are major exporters. Russia supplies oil, gas, and metals, and, together with Ukraine, of wheat and corn, the decline in the supply has driven prices up sharply, it said.
The IMF believes in just a few weeks, the world has yet again experienced a "major, transformative shock" after Covid. "The war has created the very real prospect that a large part of the recent gains will be erased,” it said. There, there's a need for commensurate and concerted policy actions to prevent even worse outcomes, warns the IMF.