New Delhi: The International Monetary Fund (IMF) has downgraded its growth forecast for the Indian economy from 6.1% to 5.9% for the current fiscal 2023-24, mainly because of the slow domestic consumption and data revision, a top IMF official told news agency PTI.
Krishna Srinivasan, director of the Asia and Pacific Department, IMF, told PTI that the revisions to India’s growth have been very modest and probably reflects two factors.
“One is that domestic consumption growth is starting to slow, albeit modestly. The other factor is data revisions in 2019 to 2020, which suggests the economic position of India before the pandemic was better. The impact of the pandemic was more limited than we thought, and recovery has been stronger,” he said.
All those point to the fact that output gaps are closing, he told reporters at a news conference in Washington on Thursday.
“That explains how we see the revisions to the forecast. Now, in terms of what are the risks, again, the external risks, which are the same across the region in terms of what happens to partner country growth with slowing growth in the US and Europe.”
“How does that affect India and market turbulence? All these are factors which are external risks to the growth forecast,” Srinivasan said.
On the slow consumption demand factor, the Indian Express in its editorial said that “this implies that the ‘revenge consumption’ boom, the impetus to growth from pent up demand, is fading.”
Srinivasan said that domestically, the government is placing a lot of emphasis on capital spending and that if it comes below what is expected, that could also weigh on growth prediction.
The newspaper in its editorial said, “On investments, while both central and state governments have budgeted for an aggressive increase in capital spending, lower than expected capex by states last year raises questions over their ability to meet the ambitious targets this year. This implies that the overall public sector impulse to investment activity may perhaps be lower than expected, even as private investments remain subdued.”
Analysts told Business Standard that consumption demand is highly skewed in favour of goods and services consumed largely by households falling in the upper-income bracket. Another report said that Indian households are saving less, and that high inflation may have pushed consumers to dip into their savings to make purchases.
According to Refinitiv, a global provider of investment and financial data, private equity investments in India fell by 42% across sectors in 2022, as compared to the previous year.
In terms of assessment of India’s growth forecast, the Reserve Bank of India appears to be more optimistic. It has recently raised its forecast to 6.5% for FY24.
The Asian Development Bank has pegged Indian economy’s growth at 6.4%, driven by private consumption and private investment on the back of government policies. However, the World Bank has lowered its growth forecast from 6.9% (December 2022) to 6.3% for FY24, due to slower consumption growth and challenging external conditions.