The International Monetary Fund (IMF) estimates that India’s Gross Domestic Product (GDP) will grow by 6.8% in the 2022/2023 fiscal year, with an increase of 6.1% in the 2023/2024 fiscal year. In a statement, the institution says that the moderation occurs in a framework of “less favorable outlook and tighter financial conditions”.
The statement informs that the Executive Council of the Fund concluded, on October 28, a consultation with India under Article IV of its charter. In view of the calculation, the IMF highlights the recovery of the country’s economy after the shock of the pandemic, with growth of 8.7% in the 2021/2022 fiscal year. Growth has continued since then, supported by a recovery in the labor market and “increasing credit to the private sector”. New cases of covid-19, in turn, retreated to low levels, in a context of high vaccination rates.
The IMF sees headwinds for the Indian economy anyway, such as inflationary pressures and tighter global financial conditions. In addition, the war in Ukraine and ensuing sanctions against Russia play a role, while in China and in advanced economies growth is expected to be lower. “The authorities respond with fiscal policy measures to support the most vulnerable groups and mitigate the impact of high commodity prices on inflation,” he says.
He also says that there has been a gradual withdrawal of accommodation in monetary policy. Indian inflation is expected to stand at 6.9% in the 2022/2023 fiscal year and only gradually moderate over the next year. The current account deficit should rise to 3.5% of GDP in the 2022/2023 fiscal year, points out the IMF.
There is heightened uncertainty in the outlook, with downside risks, says the Fund. A sharp global economic slowdown in the near term would affect India through trade and finance channels, while further effects from the confrontation in Ukraine would threaten global food and energy markets. On the positive side, successful implementation of reforms or higher dividends from “remarkable advances in digitization” could boost India’s medium-term growth potential, in the Fund’s view.
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