IMF on Tuesday sharply lowered India’s economic growth forecast to 6.8 percent in its latest World Economic Outlook as compared to the 7.4 percent it had estimated earlier in July, citing the impact of external headwinds and weaker-than-expected second-quarter growth.
The chief economist of the International Monetary Fund (IMF) has said that India emerged as a bright light at a time when the world is facing imminent prospects of a recession, however, noting that, the country needs key structural reforms in order to achieve the ambitious target of being a $10 trillion economy.
Pierre-Olivier Gourinchas, chief economist of the IMF said: “Well, India is, I want to say, sort of bright light. The Indian economy has been doing reasonably well.”
IMF on Tuesday sharply lowered India’s economic growth forecast to 6.8 percent in its latest World Economic Outlook as compared to the 7.4 percent it had estimated earlier in July, citing the impact of external headwinds and weaker-than-expected second-quarter growth. In its report, the IMF trimmed its 2023 global GDP forecast to 2.7 percent, 0.2 points down from July expectations. “The worst is yet to come and, for many people 2023 will feel like a recession,” said Gourinchas.
Responding to a question on the ambitious goal of India becoming a USD 10 trillion economies, Gourinchas told PTI that he certainly believes this is achievable.
“I mean, we’ve seen a number of countries grow at very fast rates in the past and really develop very rapidly. So, I think it’s certainly, now it’s not necessarily an easy task, but I think, yes, there is certainly an enormous potential for an economy like India,” he told the news agency PTI in an interview.
To do so, India needs to carry out a number of structural reforms, he observed.
“Well, there are certainly a number of structural reforms that are or improvements are needed in the economy like India. There have been a number of reforms already,” he said.
The chief economist also applauded India’s digitization efforts saying that the move was a game changer as it had allowed the Indian government to do things that would have been extremely difficult otherwise.
For instance, India is very much at the forefront of digitalization, he said.
“The way these digital tools can be deployed to improve financial inclusion or to facilitate access to administrative services, and things like that. And that is a testimony to the sort of innovation in that sector that is happening in India,” he observed.
“But beyond that, there are needs for reforms that will actually boost potential growth. It’s not just about stabilizing the economy around the potential growth that it has right now. In order to unleash India’s potential, a lot of reforms have to be implemented that will boost productivity growth,” Gourinchas told PTI in response to a question.
“Here, of course, we can think about improvements on the health side, we can think about improvements on the education side, social spending, digital literacy, and access, we can think about infrastructure,” he suggested.
“There is a range of areas where, you know, public infrastructure broadly defined, not just in terms of buildings and roads, but also investing in human, investing in people and human capital, health, education, etc. is going to help the economy really, really grow very fast on a continuous basis,” said the IMF chief economist.
In response to a question, the chief economist said the Indian economy had rebounded from the pandemic downturn.
The slowdown between 22-23 is going to be reflecting basically, the fact that the global economy is also slowing down and that the external factors are going to reflect on today’s economy, high energy prices, the slowdown in external demand, and the weakening of global confidence in general, he stressed.
“So that’s weighing down a little bit. The revision downwards that we have in 2022 is again due to some of the tighter financial conditions and external conditions. But there was a little bit of a weak first quarter of the fiscal year that has factored into the revision,” he said.
The Indian economy is a bright spot in today’s world because its growth is still fairly robust, he said.
“India is one of the largest economies. So, when it’s really growing at solid rates like 6.8 or 6.1, it is really noticeable. In a picture where all the other economies and advanced economies, rarely grow at that speed, but even other large countries don’t do as well in the current year or next year in our projections. So it’s certainly extending out,” Gourinchas said.
Further, he added that India, which will hold the G-20 presidency next year, will have a difficult task as the group’s chair to bring countries together on some of the key challenges being faced by the world.
“One of the challenges for the G-20 right now, as we’ve seen, is of course how to deal with geo-economic fragmentation. And geo-economy fragmentation is just reflecting the fact that we’ve seen enormous tensions following the Russian invasion of Ukraine,” Gourinchas told PTI.
“To some extent to the G-20, it’s much harder to have these kinds of conversations around the common goods in the current environment because there is all this tension related to geopolitical considerations. And so, India will have a difficult task, but also, I would think one of the important objectives will be to keep the countries at the table, to keep the discussion going, keep progress being made on important issues,” he said in response to a question.