Consumption demand in India is cooling and the economy has nearly caught up with the pandemic-induced slowdown, leaving lesser grounds to cover for an expansion, said Nada Choueiri, International Monetary Fund’s Mission Chief for the country in an interview with Bloomberg Television.
(Bloomberg) — Consumption demand in India is cooling and the economy has nearly caught up with the pandemic-induced slowdown, leaving lesser grounds to cover for an expansion, said Nada Choueiri, International Monetary Fund’s Mission Chief for the country in an interview with Bloomberg Television.
The IMF slashed its growth outlook for India to 5.9% for the current fiscal year that started this month from 6.1% it had forecast in January, while that for next fiscal year has now been cut by half-a-percentage point to 6.3%. The fund trimmed its global growth projection to 2.8% this year from 2.9% seen earlier.
Data suggests demand is softening, “but more importantly, new data available on the previous years suggests that the pandemic impact on the economy has been short-lived and growth has recovered much more quickly,” diminishing the “need for catchup,” Choueiri said in her interview to Rishaad Salamat and Haslinda Amin.
While India will still be the fastest growing major economy in the world, the IMF’s projections fall short of the Reserve Bank of India’s 6.5% estimate for the year.
Choueiri said a “good monsoon” would help reduce food prices that’ll help bring down the overall inflation to under 5% in the current financial year. The central bank expects price gains to moderate to 5.2% for the period.
Read more: Normal Monsoon Forecast Eases India Crop and Growth Concerns
However, external risks such as abrupt volatility in the global financial markets and slowdown in India’s key export markets could challenge the IMF’s estimates, Choueiri said.
The RBI paused its yearlong tightening cycle last week to assess the impact of its 250 basis points rate increase since last May. The Indian central bank “needs to be data dependent” now, Choueiri said.
Volatility in energy prices should not pose much risk, she said, adding that the central bank is in a “comfortable position after accumulating significant amount of reserves.”
India’s exports, particularly in services, have been resilient and that should keep the current account deficit contained at 2.5% of the gross domestic product in the financial year that ended in March, which would be “really very much sustainable,” Choueiri said.
Want to get the latest business news and analysis from Bloomberg on Telegram? Join our Telegram channel by clicking here and tapping Join.
–With assistance from Ruchi Bhatia and Anand Menon.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.