IMF cuts India’s FY20 growth forecast to 4.8%

The International Monetary Fund (IMF) has significantly reduced its 2019-2020 economic growth estimate for India to 4.8% from 6.1% projected in October. The IMF attributed the change in its outlook mainly to sharper than expected slowdown in domestic demand amid the turmoil in the non-banking financial companies (NBFCs) sector.

“India’s growth is estimated at 4.8% in 2019, projected to improve to 5.8% in 2020 and 6.5% in 2021 (1.2 and 0.9 percentage point lower than in the October WEO), supported by monetary and fiscal stimulus as well as subdued oil prices,” the IMF noted in its report on Monday.

“The growth markdown largely reflects a downward revision to India’s projection, where domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth,” the IMF said.

The IMF said the steep cut in India’s growth rate has also dragged down its growth estimate for the global economy to 2.9% in 2019 against the previous forecast of 3% in October. However, it expects global growth to improve to 3.3% in 2020 from 2.9% in 2019. It has lowered its global growth forecast for 2021 to 3.4% from 3.6% projected earlier.

The IMF has also projected growth in China to slow down to 5.8% in 2021, 6% in 2020 from 6.1% in 2019. “The envisaged partial rollback of past tariffs and pause in additional tariff hikes as part of a ‘Phase One’ trade deal with the United States is likely to alleviate near-term cyclical weakness, resulting in a 0.2 percentage point upgrade to China’s 2020 growth forecast relative to the October WEO,” it stated.

Yet, the IMF cautioned unresolved disputes on broader U.S.-China economic relations could continue weighing on economic activity.

The S&P BSE Sensex was trading in the red at 41,421.63 points—down by 0.38%—at 2:13 pm on Tuesday.