In a pivotal update from the International Monetary Fund (IMF) issued on Tuesday, an optimistic revision has pushed the projected growth rate for India’s Gross Domestic Product (GDP) in the fiscal year 2024/25 to 6.8%. This figure marks a notably positive adjustment—a 0.3 percentage point increase—from the Fund’s earlier forecast posted in January. Additionally, the economic growth for the country is expected to sustain momentum into the following year with a forecast of 6.5%. The revised projections were part of the IMF’s World Economic Outlook report presented in April 2024, coinciding with the start of the annual World Bank IMF Spring Meetings.
The global economic landscape has demonstrated a resilient performance, eluding the widespread anticipation of stagflation and a global recession following the aftermath of the pandemic, the invasion of Ukraine by Russia, which induced global energy and agricultural crises, and tightened monetary policies across the world. This resilience is echoed in the IMF’s expectations of global output growth, with predictions of a 3.2% increase in both 2024 and 2025, recovering from a low of 2.3% at the end of 2022.
India’s economic expansion last fiscal year reached 7.8%, and the anticipated decline in the growth rate is primarily attributed to fiscal and monetary tightening measures aimed at curbing inflationary pressures. During a press briefing, IMF economist Daniel Leigh provided insights into India’s projected inflation rates, which are anticipated to be 4.6% this year, tapering slightly to 4.2% in the next year.
Despite these measures exerting economic dampening pressure, the growth estimates have room for positive surprises, spurred potentially by an uptick in private sector demand. A question from The Hindu regarding policy measures for the Indian economy and methods to address unemployment prompted a response from Mr. Leigh, highlighting possible reforms. These reforms may liberalize foreign investments, stimulate exports and job creation, and enhance labor force participation, potentially elevating the growth forecasts.
Inflation rates globally are expected to moderate, according to the IMF. Headline inflation is projected to decrease from 2.8% at the end of the current year to 2.4% by the end of 2025. Echoing optimism, the IMF’s report denotes softening economic conditions and less anticipated long-term damage, or ‘scarring’, from the recent economic turmoil.
IMF’s Chief Economist Pierre-Olivier Gourinchas addressed these issues in a virtual media briefing, recognizing that while most regions have recovered well, low-income and developing areas are at a higher risk of longer-term impacts. The Fund calls for vigilance despite positive trends, as rising inflation figures—particularly in the service sectors—could potentially hinder the overall disinflation trajectory. Therefore, the IMF reinforces the urgency of focusing on inflation reduction as a primary economic objective.
The report further advises countries to reinforce their fiscal positions by credibly consolidating their budgets to reduce borrowing costs and bolster financial stability. However, the IMF identified significant disparities between countries. The U.S., for example, while driving global growth, faces questions over the long-term sustainability of its fiscal strategies. The U.S. economy is expected to grow by 2.7% in 2024, with a subsequent slowdown to 1.9% in 2025.
The IMF also acknowledges the importance of boosting domestic and foreign investments, as well as enhancing human capital in low-income developing countries to help decrease borrowing costs and facilitate their development.
Medium-term growth prospects are mostly hindered by lower total factor productivity, which stems from poor allocation of labor and capital. Interestingly, the report touches on the sensitive issue of immigration, noting almost two-thirds of workforce entrants in the medium term are likely to come from India and sub-Saharan Africa, illustrating the significance of migrant workers in advanced economies.
In summary, the updated IMF forecast paints a picture of a more dynamic Indian economy with the potential for sustained growth over the next few years, albeit under the constant watch of inflation and economic reforms.
