IMF cuts India's 2022-23 growth forecast, but will still be among fastest growing economies

The International Monetary Fund, which released its World Economic Outlook report on Tuesday, said that the revision of India's growth by 80 basis points at 7.4 per cent for 2022-23 reflects mainly less favourable external conditions and more rapid policy tightening.

Amidst the global recession threat, the International Monetary Fund (IMF) on Tuesday slashed India's growth by 80 basis points to 7.4 per cent for 2022-23, attributing it to policy tightening by the Reserve Bank of India (RBI) and external conditions. For 2023-24, it is expected to further slow down to 6.1 per cent. However, the estimate is marginally higher than India's apex bank's latest projection of a 7.2 per cent growth rate. 

In its earlier estimates, the IMF had said that India is projected to grow at 8.2 per cent, which is a sharp decline in its economic outlook for 2022-2023. The IMF, which released its World Economic Outlook report on Tuesday, said that for India, the revision reflects mainly less favourable external conditions and more rapid policy tightening.

IMF Chief Economist Pierre-Olivier Gourinchas said: "Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship. Central banks that have started tightening should stay the course until inflation is tamed."

Even after cutting the growth forecast, the IMF said the Indian economy will remain one of the fastest growing key economies in the world in FY23 and FY24.

Among the developing economies, the IMF has also cut the growth forecast for China at 3.3 per cent in 2022-23 from 4.4 per cent estimated earlier. In China, further lockdowns and the deepening real estate crisis have led growth to be revised down by 1.1 percentage points, with major global spillovers, he said.

As per the IMF, the world economy would grow at 3.2 per cent this year from 6.2 per cent estimated previously. It would further slow down to 2.9 per cent in 2023-24. "The global economy is slowing sharply. The war in Ukraine, rising energy and food prices, and supply-demand imbalances are feeding worldwide inflation," the IMF said.

For the United States it said that the advanced economy would grow at 2.3 per cent in 2022-23. Earlier, it had projected the US economy to grow at 5.7 per cent. The IMF economist has reasoned that lower growth earlier this year, reduced household purchasing power, and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States.