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IMF cuts India’s growth rate to 4.8%, calling one of the “negative surprises”

India is expected to get the top spot in 2021, with a growth rate of 6.5% to China’s 5.8%: IMF.

The International Monetary Fund (IMF) on Jan 20 sharply cut India’s growth estimate for the current fiscal to 4.8%, darkening the economic picture from the rosy 7.5% made this time last year. Calling it one of the “negative surprises”. However, It expects growth to be 5.8% in 2020 and rise to 6.5% in 2021.

Following the same, The latest cut follows a downward trend which reduced India’s growth to 6.1% in October. Globally, IMF’s World Economic Outlook (WEO) blamed India’s economic slowdown for a “lion’s share” of the 0.1% cut in the global economic growth projections for last year to 2.9% and to 3.3% for the current year from those made in October.

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According to IMF, It also cut the global economic projections for 2021 by 0.2% to 3.4%. “A more subdued growth forecast for India accounts for the lion’s share of the downward revisions,” the IMF asserted. In the next fiscal year, India’s growth rate is expected to increase by 1% to 5.8%. Although, IMF projects India to be the second fastest-growing major economy this year and the next, behind China’s 6.1 this year and 6.4 next year.

India is expected to get the top spot in 2021, with a growth rate of 6.5% to China’s 5.8%, IMF remarked in it’s report. Moreover, It also stated that the reason for the downgrade of India’s growth rates is that “domestic demand has slowed more sharply than expected amid stress in the non-bank financial sector and a decline in credit growth.”

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Recently, The IMF gave India the lowest growth projection of the three made by international organisation this month – all of which downgraded it from previous estimates. The World Bank estimated India’s growth rate to be 5% for the current fiscal, while the UN put it at 5.7%, The report attributed.

The IMF stated that globally, “trade policy uncertainty, geopolitical tensions, and idiosyncratic stress in key emerging market economies continued to weigh on global economic activity, especially manufacturing and trade, in the second half of 2019”. “Intensifying social unrest in several countries posed new challenges, as did weather-related disasters”, IMF remarked.

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Despite these, “Some indications emerged toward year-end that global growth maybe bottoming out”. At the same time it cautioned, “Downside risks, however, remain prominent, including rising geopolitical tensions, notably between the United States and Iran, intensifying social unrest, further worsening of relations between the United States and its trading partners, and deepening economic frictions between other countries”, It said in a statement.

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Meanwhile, India-born IMF Chief Economist Gita Gopinath has mentioned that, “Growth in India slowed sharply owing to stress in the non-bank financial sector and weak rural income growth”. He also said that, “the pickup in global growth for 2020 remains highly uncertain as it relies on improved growth outcomes for stressed economies like Argentina, Iran, and Turkey and for underperforming emerging and developing economies such as Brazil, India, and Mexico”.

Consequently, Many Investors have lost faith in the Indian economy. Hence, Such condition of this growth rate is a “artificial tragedy” and the plans to shift “New India” into a majoritarian nation has completely crippled. While the RBI had lowered the GDP growth projection for 2019-20 to 6.1% from the earlier forecast at 6.9%. Thus, GDP growth is at a six-year low and unemployment is at a 45-year-high, as far as the official data has been released on Nov 29, India’s economic growth slipped further to hit an over 6 year low of 4.5% in July-Sep.

Author: Trilok Singh is with CEO here.

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