India tied with China to be the world’s fastest-growing major economy even as the International Monetary Fund (IMF) on Tuesday cut its economic growth forecast by 90 basis points to 6.1% for 2019.
China’s growth rate was also slashed to 6.1% for the current year from 6.6% in 2018.
The lowering of the forecast for India was in line with that of World Bank and the Reserve Bank of India’s. While the World Bank reduced the country’s growth estimates to 6% from an earlier 7.5%, the RBI lowered it to 6.1% from 7.2%.
Among the concerns that IMF flagged for India included its elevated public debt, subsidy spending, the crisis in its non-banking finance companies besides, the US-China trade war.
IMF Chief Economist and the director of its research department Gita Gopinath said, “There has been a negative impact on India’s growth that has come from the vulnerabilities in the non-banking financial sector and its impact on consumer and SME borrowings.
“Some measures have been taken. A lot more needs to be done including clearing up of the balance sheets of the regular commercial banks.”
She hailed India’s recent corporate tax rate cut but said it was important for the country to keep its fiscal deficit under check. Gopinath expressed concerns that the fiscal implications of the tax cut had not been revealed by the government.
The IMF also cut the global forecast by 20 basis points for 2019 to 3%, its slowest pace since the global financial crisis. Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions.
“We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8% by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and structural forces — such as low productivity growth and ageing demographics in advanced economies,” Gopinath said.