The International Monetary Fund (IMF) on Monday announced a downward revision in India's growth projections for the current year to 7.3 per cent and for the next to 7.5 per cent, even as it retained global growth at 3.9 per cent this year and for the next.
India, however, still retains top slot in IMFs global growth estimates projected in the World Economic Outlook (WEO) update.
The World Economic Outlook (WEO) Update reduced India’s growth projections by for this year 0.1 per cent from its April projections and by 0.3 per cent for 2019, mainly due to higher oil prices.
"India's growth remains quite robust into the future; it is down but growing very strongly", said Maurice Obstfeld, director of the IMF's Research Department.
While the main factor is the rise in oil prices, Obstfeld said "the general tightening in general global financial conditions is (also) playing a role in affecting India's growth".
Gian Maria Milesi-Ferreti, deputy director of the Research Department, added that another element that went into the downgrade was "the rising inflationary pressures".
"Monetary policy has tightened; it's a bit tighter than under our forecast in April and that adds to oil and tighter global financial conditions in taking a little bit off growth for next year," he said.
Obstfeld said that although some factors have negatively impacted the global growth since April, they were not significant enough to reduce the projection.
"We continue to project global growth rates of just about 3.9 per cent for both this year and next, but judge that the risk of worse outcomes has increased, even for the near term," he said.
For such a scenario the "possible triggers include rising trade tensions and conflicts, geopolitical concerns, and mounting political uncertainty," it added.
IMF cited the recent tariff increases by the US and retaliation by other countries and it said these "could derail the recovery and depress medium-term growth prospects".
And despite the prospects of a full-blown trade war between China and the United States, the update kept the growth projections for China unchanged at 6.6 per cent for this year and at 6.4 for 2019, while for the US it kept growth projections at 2.9 per cent for 2018 and 2.7 per cent next year.
For the Euro zone, it cut the growth projections by 0.2 per cent to 2.2 per cent for this year and by 0.1 per cent to 1.9 per cent for the next year.
"The dollar has already appreciated broadly since April, and financial conditions facing emerging and frontier economies have become somewhat more restrictive," Obstfeld said.
The Update said the dollar has appreciated by 5 per cent since February.
The reduction in India’s growth projections reflect the "negative effects of higher oil prices on domestic demand and faster than-anticipated monetary policy tightening due to higher expected inflation."
The latest projections are still markedly higher than the growth rate of 6.7 per cent in 2017 and the report said it was because "drags from the currency exchange initiative and the introduction of the goods and services tax, fade".
The IMF Update is in line with the World Bank's Global Economics Prospects projections issued last month.