Subdued domestic demand leads IMF to cut GDP growth rate of India to 7%

The IMF (International Monetary Fund) has slashed the projected rate of the economic growth of India to 7% for 2019-20. This rate has been cut by 0.3% by the IMF. Besides, the projection was also reduced by 0.3% for the next financial year.

The IMF stated that the economy of India is likely to witness a growth of 7.0% in 2019. In 2020, it is likely to be around 7.2%. However, the IMF did not furnish any detail about the low domestic demand. However, several segments of industries are witnessing a slowdown. Particularly, the automobile industry has slowed down to a considerable extent in the last few years. The sales of vehicles have dropped by 5.4% in June, calculated on a year-on-year basis to 1.64 million units.

The GDP forecast is 7% in the current financial year, which is in line with the projection made by the finance ministry. It should also be noted that the IMF had projected a 7.3% growth in April, when the economic growth of India was pegged at 7% by the second advance estimates. Presently, the growth has dropped to 6.8%. This indicates that even the lower push in GDP will not lead to an expansion in the economic front in the present financial year.

However, India will continue to grow at a fast pace. In fact, it is presently one of the fastest growing economies in the world. The closest competitor of India is China. In 2019, it is expected to grow at 6.2%, and in 2020, the growth rate is expected to be 6%. In both the years, these projections were reduced by 0.1% points, from the estimates that were made previously. In 2018, the growth rate of China was 6.6%.

In 2020-21, the growth rate in the GDP of India was 7.2%. This indicates that the economy will witness the same growth rate, as it experienced in 2017-18. Evidently, the economy will need three years to get back to where it was.

The IMF has also reduced the growth of the global economy by 0.1%. IN 2019 and 2020, the expected growth rate is likely to be 3.2% and 3.5%. It stated that the growth is likely to remain subdued in the global platform. In recent times, trade relations between the US and China threatened the global supply chain in technology. The restrictions seemed to be a danger to the global economic growth. The energy prices were also likely to be affected. The IMF had also noticed that the RBI, along with other central banks had turned dovish, and have turned more cautious. Last June, the repo rates were cut by 25 basis points by the RBI. This was the third time in a year that the RBI cut the repo rates.