IMF Cuts FY20 Projection; Says India's Growth 'Weaker' Than Expected

India’s economic growth is “much weaker” than expected, the contributing reason for this are corporate and environmental regulatory uncertainty and weaknesses in the NBFCs also called out as shadow-banking sector, the International Monetary Fund (IMF) has said, raising the fear of a protracted slowdown.

The country’s GDP growth hit a 25-quarter low of 5 per cent in the April-June period, according to official data. 

The IMF in July projected a slower growth for India in 2019 and 2020, a downward revision of 0.3 per cent for both the years saying its GDP will now grow respectively at the rate of 7 per cent. India will be the fastest growing major economy of the world and much ahead of china , the Washington based global financial institution said.

However, its latest assessment indicates that the multilateral body will likely trim its India growth forecast again in October when it will update its projections for global growth. Various domestic and foreign analysts have trimmed their India forecasts for the current fiscal, with some pegging it at below 6.5per cent.

“We will have a fresh set of numbers coming up, but the recent economic growth in India is much weaker than expected, mainly due to corporate and environmental regulatory uncertainty and lingering weakness in some non-bank financial companies,” IMF spokesman Gerry Rice said. The risks to the outlook are tilted to the downside, he added. “We will update that assessment in the upcoming world economic outlook.”

Although the economy’s sharp slowdown in the June quarter was on an unfavourable base due to worse private consumption, the main engine of the economy, appeared to have suffered the biggest blow with year-on-year growth of just 3.1per cent (the lowest since Q3FY15). There has been a swift slide in private consumption since the second quarter of last fiscal when it grew at 9.8per cent.

Growth of gross value added in manufacturing also reduced to 0.6per cent in Q1FY20, compared with a rather strong 12.1per cent in the year-ago quarter and 3.1per cent in Q4FY19. Construction GVA grew just 5.7 per cent in Q1FY20 versus 9.6per cent in the year-ago quarter.

The gross fixed capital formation, also called "investment", is defined as the acquisition of produced assets (including purchases of second-hand assets), including the production of such assets by producers for their own use, minus disposals. It is also a close proxy of investment, which grew at a 4per cent in Q1, only marginally higher than 3.6per cent in Q4FY19. 

The growth is expected to rise to 7.2 per cent points in FY21, down by the projected growth rate of 7.5 in the earlier report. Ministry of Statistics and Programme Implementation in a statement the the slowdown was largely due to a sharp dip in the manufacturing sector and agriculture output, 

The previous low was recorded at 4.9 per cent in April to June 2012-13. Consumer demand and private investment have weakened amid global trade frictions and dampening business sentiment.