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India’s Economic Growth 2019

India’s Economic Growth 2019

Tag:GS-3|| Economy|| External Sector|| World Bank

What is the issue?

  • The IMF and the World Bank have significantly slashed the growth projections for India for the year 2019.
  • Sharp cuts in growth forecast underline the economic slowdown’s severity.

Observations by IMF and WB

  • IMF 
    • The IMF in its latest World Economic Outlook has slashed India’s GDP growth projection for 2019 to 6.1% (Oct 2019).
    • This is 1.2% down from its April 2019 projections of 7.3%.
    • Corporate and environmental regulatory uncertainty and concerns on the health of the nonbank financial sector affected the demand scenario.
    • Consequently, in India, growth weakened in 2019.
    • Asia’s third-largest economy, India, grew at its slowest pace in 6 years in the June quarter at 5%.
    • The IMF now joins a range of multilateral institutions, rating firms and brokerages in cutting economic growth estimates for India.
  • World Bank 
    • The World Bank in its latest edition of the South Asia Economic Focus said India’s growth rate is projected to fall to 6% in 2019 from 6.9% of 2018.
    • The World Bank slashed its economic growth forecast for India to 6%.
    • It cited a broad-based and severe cyclical slowdown as the reason.

Point of contention

  • A significant issue of debate is over the cause of the malaise.
  • The World Bank largely echoes what India’s Centre has been saying.
  • It says that the current one is a cyclical slowdown, exacerbated by global influences.
  • However, many of the Indian experts surveyed and some rating agencies do not agree with this view.
  • g. Moody’s Investors Service lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier
  • It ascribed the slowdown partly to “long-lasting factors”, suggesting the structural factors behind the slowdown.

What are the suggestions made?

  • World Bank has warned that non-banking financial companies’ significant share in total credit and their linkages with banks pose broad-based risks.
  • It suggests that financial sector reforms would help India both resolve the sectoral infirmities and put the country back on a rapid growth path.
  • The WB also observed that a sharper-than-expected slowdown in major economies such as the S. and Euro zone could have severe spillover impacts.
  • It thus noted that India was vulnerable to being affected immediately and over a longer duration by real GDP shocks in these advanced economies.
  • In the case of a Chinese GDP shock, the onset of the impact on India would likely be delayed but substantially more pronounced.
  • IMF has urged structural reforms in labour and land laws to boost job and infrastructure creation.

 Way forward

  • Besides the above, there is a widespread view that the dull domestic consumption demand is the biggest drag on the growth momentum.
  • It is; therefore, wise to put more money in the hands of consumers, especially those in the rural hinterland, to reinvigorate demand.
  • Appropriate policy interventions to address the slowdown are crucial at this juncture.