IMF's Gopinath says India's slowdown is a drag on global economy

21 Jan 2020

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The International Monetary Fund (IMF) on Monday announced a downward revision of India’s gross domestic product (GDP) growth for 2019 by a huge 1.2 percentage points to 4.8 per cent and blamed this economic slowdown for a “lion’s share” of its 0.1 percentage point reduction in global growth projections. 

At the same time, Gopinath said the Reserve Bank of India's policy rate cuts have stimulated growth which is expected to "feed into the system over the next 12 years."
In an interview with CNBC-TV18 at the World Economic Forum, in Davos, Gopinath also laid emphasis on the need for fiscal consolidation, policies for rural India in a bid to boost consumer spending, and also the China-US trade deal reaching its full potential.
One of the major factors behind the downward revision was the weakness in credit growth. Successive rate cuts by the RBI and some reductions in banks’ lending rates have failed to boost credit offtake.
Much will depend on how the government and the financial  institutions work together to resuscitate credit growth, while also making sure that there is not going to be another non-performing asset problem in the future.
IMF feels the slowdown could also be in some part due to weakness in rural income growth. However, recovery is expected by the first half of fiscal year 2020-2021 is when growth would start happening, going up to 5.8 per cent in the following fiscal. 
Indian economy has been in turmoil with the GDP rate in September quarter slowing to lowest in years. 
The IMF forecast also precedes India’s annual budget that is expected to announce some prescriptions to boost demand and spending. 
Any spending that does not help raise output and create wealth should be avoided and  the government should have a comprehensive policy that takes care of fiscal sustainability, according to Gopinath.

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