The International Monetary Fund (IMF) on Tuesday raised its FY24 growth projection for India by 20 basis points to 6.3 per cent, citing stronger than expected consumption between April and June.
“India is one of the large emerging economies that (have) been doing better than expected for quite a while now. (It) is one of the one of the growth engines in the world economy,” said Pierre-Olivier Gourinchas, economic counsellor and director of the research department, IMF.
The IMF’s latest World Economic Outlook (WEO) kept its global growth forecast unchanged at 3 per cent for 2023 and pared down the 2024 projection by 10 basis points to 2.9 per cent.
“Growth in India is projected to remain strong, at 6.3 per cent in both 2023 (FY24) and 2024 (FY25), with an upward revision of 0.2 percentage (points) for 2023 (FY24), reflecting stronger-than-expected consumption during April-June,” said the IMF.
The IMF’s inflation projection for India has been revised upward to 5.5 per cent for FY24. It expects the inflation rate to remain in the range 2-6 per cent this financial year, and 4.6 per cent next year.
“This is conditional on the monetary policy continuing to be very focused on delivering price stability, and a continuing data-dependent approach. More fiscal consolidation, especially in terms of a medium-term plan will also support monetary policy in reducing inflation,” said Daniel Leigh, division chief, research department, IMF.
The IMF report comes against the backdrop of the conflict between Israel and Hamas. Economists said if the war between Israel and Hamas drew out and countries such as the US and Saudi Arabia took sides, oil prices could come under pressure.
“We are monitoring this situation very carefully in terms of the economic impact it can have on the region and beyond. It is too early to assess. This happened after the round of the current projection was closed,” said Gourinchas.
In its July WEO, the IMF had projected a growth rate of 6.1 per cent for India in FY24, a 0.2 percentage point upward revision as against the April projection, driven by strong domestic investment.
Earlier this month, the World Bank too said its economic growth forecast for India remained at 6.3 per cent, underpinned by strong investment growth.
Both the finance ministry and Reserve Bank of India (RBI) have retained their 6.5 per cent GDP growth estimate for FY24.
The IMF report said monetary policy projections were consistent with achieving the RBI’s inflation target over the medium term.
In the monetary policy review last week, RBI Governor Shaktikanta Das said headwinds from geopolitical tensions and geoeconomic fragmentation, volatility in global financial markets, a global economic slowdown, and uneven monsoon posed risks to the economic outlook.
The IMF said: “Economic activity still falls short of its pre-pandemic path, especially in emerging markets and developing economies, and there are widening divergences among regions.”
It said several forces were holding back recovery as a result of the long-term consequences of the pandemic, the war in Ukraine, and increasing geoeconomic fragmentation.