IMF slashes India's GDP growth forecast to 5.9% for 2023-24

The International Monetary Fund (IMF) on Tuesday slashed India's gross domestic product growth forecast to 5.9% for the financial year 2023-24, down 20 basis points compared with 6.1% projected earlier.

This is the lowest GDP growth forecast for India among other estimates by global financial institutions. The World Bank earlier this month lowered India's GDP growth forecast to 6.3% for FY24 from 6.6% citing lower consumption growth and challenging external conditions. Asian Development Bank (ADB) too revised its GDP growth estimate to 6.4% for FY24.

The IMF expects India's GDP to grow at 6.3% in FY25, down 50 basis points from its earlier forecast of 6.8%. The agency, in its latest bi-annual World Economic Outlook, pegs the country's GDP growth at 6.8% in FY23.

This comes days after the Reserve Bank of India's monetary policy committee (MPC) marginally hiked its GDP forecast for the financial year 2023-24 to 6.5% from 6.4% earlier. In a press conference after the MPC meeting, RBI governor Shaktikanta Das said India's economic activity remains resilient and the higher rabi production has brightened the prospects for agriculture sector and rural demand.

"The steady growth in contact-intensive services should be positive for urban demand. The government's focus on capital expenditure, capacity utilisation above long-period average and moderating commodity prices should bolster manufacturing and investment activity. The drag from net external demand may continue due to increased global headwinds. The protracted geopolitical tensions and global financial market volatility pose downside risks to the outlook. Taking all these factors into consideration, real GDP growth for 2023-24 is projected at 6.5%, with Q1 at 7.8%; Q2 at 6.2%; Q3 at 6.1%; and Q4 at 5.9%," Das said.

Meanwhile, the International Monetary Fund projects India's retail inflation to ease to 4.9% in FY24 from 6.7% in FY23. It expects consumer price inflation to further soften to 4.4% in FY25.

India's consumer price inflation has increased since December 2022, driven by price pressures in cereals, milk and fruits.

"The softening in inflation during November-December 2022 turned out to be transitory with CPI headline inflation breaching the upper tolerance threshold during January-February 2023. A sharp turnaround in food inflation drove the pick-up in headline inflation as core inflation remained elevated across a range of goods and services," Das said after the MPC meeting.

"Looking ahead, headline inflation is projected to moderate in 2023-24. The monetary policy actions taken since May 2022 are still working through the system," he added.

As per MPC's estimates, CPI inflation is projected to moderate to 5.2% for 2023-24; with Q1 at 5.1%; Q2 at 5.4%; Q3 at 5.4%; and Q4 at 5.2%.