IMF likely to slash FY23 GDP growth forecast for India to 8-8.3%

Its FY23 projection would still be better than many

The International Monetary Fund (IMF), in its next World Economic Outlook report, is likely to cut its growth forecast for India to 8-8.3 per cent from the current 9 per cent for fiscal year 2022-23, a source familiar with the matter said. The IMF report is scheduled to be released on April 19.

In its January report, the multilateral institution had raised India’s gross domestic product (GDP) growth forecast for FY23 to 9 per cent from 8.5 per cent. It had, however, slashed the country’s FY22 GDP growth forecast to 9 per cent from 9.5 per cent, citing disruptions due to the Omicron surge. In IMF parlance, India’s FY23 is referred to as 2022, while FY22 as 2021.

The January report was released when India was facing the third wave of the Covid-19 pandemic, but before Russia’s invasion of Ukraine. The war and subsequent sanctions against Russia have disrupted supply chains across the world and led to higher commodity prices.

“The IMF may cut its India GDP forecast, but it will still be more bullish than other agencies,” said the source.

Business Standard reached out to Luis Breuer, IMF’s resident representative for India, Nepal and Bhutan, but he declined to comment for the story.

At 8 per cent or above, the IMF’s FY23 GDP forecast for India will be better than many, including that of the Reserve Bank of India, which earlier this month cut its projection to 7.2 per cent from 7.8 per cent.

A number of agencies have lowered their India GDP forecast. The last one was the World Bank, which on Wednesday slashed its estimate to 8 per cent from 8.7 per cent, citing tepid recovery in consumption demand and escalating uncertainties due to the Russian invasion of Ukraine.

“The recovery in private consumption will be constrained by the incomplete recovery in the labour market, and inflationary pressures weighing on households’ purchasing power. The negative impact of the war in Ukraine on FY2022/23 growth is expected to be moderate, so growth will begin to taper off in the second half of 2022,” the World Bank said in its bi-annual ‘South Asia Economic Focus’ report.

The impact of volatility on international commodity prices has started to seep into domestic inflation. India's consumer price index-based inflation jumped to a 17-month high of 6.95 percent in March. This was the third straight month when retail inflation has been above the Monetary Policy Committee’s target of 4 (+/-2) per cent.

Since this will be the IMF's first WEO report since the war in Europe began, it is likely that will be the main focus of the report. As such, a cut in growth estimates is expected for the global economy and for major economies. This could especially happen in the case of China, where major urban centres, including Shanghai, are reeling from strict lockdowns amid a surge in Covid-19 cases.