IMF revises India’s GDP forecast upwards on better demand

The International Monetary Fund thinks that India’s GDP could grow at a faster clip in the current financial year riding domestic demand that has been described as better than expected. In its latest World Economic Outlook update for January 2024, the multilateral funding agency stated that the country’s economy could grow by 6.7% in FY24 – a good 40 basis points higher than the 6.3% predicted by it in October last year.

For the next two financial years, IMF expects the GDP to expand at 6.5%.

The IMF predicted global growth to clock 3.1% in 2024, which is 20 basis points higher than the forecast in October 2023. In 2025, the rate of expansion would be at 3.2%, it said. However, both these rates are lower than the average for the two decades between 2000 and 2019 which was 3.8%.

“Growth in India is projected to remain strong at 6.5% in both 2024 (FY25) and 2025 (FY26), with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand,” the IMF said in its report unveiled on 30 January.

However, the Reserve Bank of India has forecast that this year the GDP would grow by 7.4%.

What could indicate happier tidings for India is that faster-than-expected easing of inflation could also improve the economic growth in the world. In its report, the IMF has also upgraded the outlook for both the US and China.

The chief economist of the IMF, Pierre-Olivier Gourinchas said, “We find that the global economy continues to display remarkable resilience and we are now in the final descent toward a ‘soft landing’ with inflation declining steadily and growth holding up. But the base of expansion remains on the slower side and there might be turbulence ahead.”

In another sweetener for the Indian economy, the IMF also forecast lower crude oil prices. It expected average oil prices to decline 2.3% in 2024, which is a sharp drop compared to the 0.7% decline it forecast in October 2023. In 2025, prices could further slide 4.8%.

Any drop in oil prices has a cooling effect on the inflation front that could spur growth of consumption in India, which is a main driver of the GDP growth and triggers employment generation.

The IMF also stated that new outlook was based on robust private and public spending despite tight monetary conditions. Higher labour force participation, restored supply chains and cheaper energy and commodity prices added to the optimism.

Global trade could also inch up from 3.3% in 2024 to 3.6% in 2025, IMF stated, though it would be far below the two-decade average of 4.9%.

A significant area where the IMF stuck to its October 2023 forecast was headline inflation. It has been predicted at 5.8% for 2024. The rate could, however, climb down to 4.4% in 2025.

Average inflation in developed economies could be around 2.6%, down 40 basis points from the October forecast. The inflation in emerging markets could average 8.1% in 2024 and then drop to around 6% in 2025, the IMF report said.