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Informist, Saturday, Nov. 2, 2024

 

NEW DELHI – India's rural consumption is benefiting from an improved agricultural season and expanding public infrastructure spending, the International Monetary Fund's staff said in a paper.

 

"These trends are expected to continue in 2025. With this, India remains the world’s fastest growing major economy," the IMF's November Regional Economic Outlook for Asia and Pacific said Friday. 

 

Earlier this month, the IMF retained its growth forecast for India for the current and the next financial year at 7.0% and 6.5%, respectively, even as it lowered the global outlook for 2025. In India, strong growth has been driven by investment and private consumption, the staff paper said. The IMF has upped its GDP growth view by 20 basis points in July, from its forecast in April. 

 

However, the fund's growth view is below the Reserve Bank of India's forecast of GDP growth in FY25 at 7.2%. The IMF has said that India's growth will slow towards its potential in the next few years from 8.2% in 2023-24 (Apr-Mar). The fund views India's potential at around 6-7%, with a midpoint of 6.5%, according to Ranil Salgado, senior resident representative to India for the IMF. "At this stage, we're not yet confident potential growth has risen," he told Informist in an interview in August. 

 

The IMF, in its World Economic Outlook last week, warned that downside risks to the global economy "are rising and now dominate the outlook". These risks include escalation in regional conflicts, monetary policy remaining tight for too long, a possible resurgence of financial market volatility with adverse effects on sovereign debt markets, a deeper growth slowdown in China, and the continued ratcheting up of protectionist policies. The staff paper on Asia's outlook reiterated these risks. 

 

"Central banks should focus on domestic monetary stability needs—which can mean delaying policy easing in economies where inflation remains persistently above target, but also providing monetary support where core inflation is undesirably low," the staff paper said.

 

India's annual core CPI inflation has remained below 4%, the Reserve Bank of India's target for headline consumer inflation, since November. This includes readings of 3.1% in May and June, the lowest in the current series with base year FY12. In October, the RBI's Monetary Policy Committee softened its policy stance to 'neutral', after over two years of guiding for 'withdrawal of accommodation'. 

 

The paper said Asia's growth is likely to slow due to demographic shift including population aging, as well as waning global goods trade that helped these economies growth. To harness the next phase of growth, policy priorities should include education and training in new technologies, IMF staff said.

 

"At the same time, a gradual transition toward tradable services has not only been ongoing for decades already, it also promises to generate new opportunities to reinvigorate growth rather than harming it," the paper said.  End

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

 

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