Before Interim Budget On Feb 1: IMF Upgrades India's Growth Forecasts; GDP Seen Strong At 6.5% In 2024, 2025

Before India's interim budget on February 1, the International Monetary Fund (IMF) raised its growth estimates for the country in 2024 and 2025. IMF expects India's GDP growth to remain strong at 6.5% in the next two years. This reflects a resilient domestic demand. Finance Ministry on the latest IMF estimates said India continues to be the fastest-growing economy among the major economies of the world.

In its latest World Economic Outlook, IMF said that growth in India is projected to remain strong at 6.5 per cent in both 2024 and 2025, with an upgrade from October of 0.2 percentage points for both years, reflecting resilience in domestic demand.

Earlier, the growth estimates were 6.3% for India.

Right after the outlook, the Finance Ministry via X handler said, "In its World Economic Outlook Update (WEO Update - Jan. 2024), the International Monetary Fund has revised upward India's growth forecast for FY24 to 6.7% (from 6.3%) on account of the robust Q2 GDP outturn."

The ministry explained that "IMF has revised upward medium-term (potential) GDP growth to 6.5% (from 6.3%) reflecting strong public investment, positive labor market outcomes in the latest PLFS report, and adjustments to our model."

FinMin added IMF continues to view the external sector as strong and is narrowing its current account deficit projection for FY 24 from 1.8% (of GDP) to 1.6%. Lastly, it said, "India continues to be the fastest-growing economy among the major economies of the world."

Meanwhile, IMF said, global growth is projected at 3.1 per cent in 2024 and 3.2 per cent in 2025, with the 2024 forecast 0.2 percentage points higher than that in the October 2023 World Economic Outlook (WEO) on account of greater-than-expected resilience in the United States and several large emerging market and developing economies, as well as fiscal support in China.

The forecast for 2024-25 is, however, below the historical (2000-19) average of 3.8 per cent, with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth. Inflation is falling faster than expected in most regions, amid unwinding supply-side issues and restrictive monetary policy. Global headline inflation is expected to fall to 5.8 per cent in 2024 and to 4.4 per cent in 2025, with the 2025 forecast revised down, it said.

On the global front, the IMF said, "With disinflation and steady growth, the likelihood of a hard landing has receded, and risks to global growth are broadly balanced. On the upside, faster disinflation could lead to further easing of financial conditions. Looser fiscal policy than necessary and than assumed in the projections could imply temporarily higher growth but at the risk of a more costly adjustment later on."

It added, "Stronger structural reform momentum could bolster productivity with positive cross-border spillovers. On the downside, new commodity price spikes from geopolitical shocks--including continued attacks in the Red Sea--and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts could also cause growth disappointments."

According to IMF, policymakers' near-term challenge is to successfully manage the final descent of inflation to target, calibrating monetary policy in response to underlying inflation dynamics and-where wage and price pressures are dissipating-adjusting to a less restrictive stance. At the same time, in many cases, with inflation declining and economies better able to absorb the effects of fiscal tightening, a renewed focus on fiscal consolidation to rebuild budgetary capacity to deal with future shocks, raise revenue for new spending priorities, and curb the rise of public debt is needed.

IMF highlighted that targeted and carefully sequenced structural reforms would reinforce productivity growth and debt sustainability and accelerate convergence toward higher income levels. More efficient multilateral coordination is needed for, among other things, debt resolution, to avoid debt distress and create space for necessary investments, as well as to mitigate the effects of climate change.