IMF cuts India's FY20 GDP growth forecast to 6.1% from 7%

The International Monetary Fund (IMF) has cut India's GDP growth forecast to 6.1 per cent for the current fiscal from its earlier projection of 7 per cent. IMF has also reduced growth forecast for FY21 by 20 bps to 7.2%.

"India's economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies," IMF said in its bi-annual World Economic Outlook.

"In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand," it added.

The IMF said that in India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence. A credible fiscal consolidation path is needed to bring down India's elevated public debt over the medium term. This should be supported by subsidy-spending rationalisation and tax-base enhancing measures. Governance of public sector banks and the efficiency of their credit allocation needs strengthening, and the public sector's role in the financial system needs to be reduced, it said.

Reforms to hiring and dismissal regulations would help incentivise job creation and absorb the country's large demographic dividend. Land reforms should also be enhanced to encourage and expedite infrastructure development, the IMF said.

IMF's growth rate cut comes after the World Bank slashed India's projected growth rate to 6 per cent in 2019 from 6.9 per cent in 2018.

IMF also slashed China's GDP growth. It is now projected to grow at 6.1 per cent as against 6.6 per cent in 2018. China's growth is projected to further slow down at 5.8 per cent in 2020.

Also read: World Bank cuts India's growth projection to 6% from 6.9%

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