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Indian economy to grow by 6.3% in FY24 and FY25: IMF

The International Monetary Fund’s ( IMF ) Executive Board recently announced that the Indian economy is anticipated to achieve a growth rate of 6.3% in both FY24 and FY25, supported by macroeconomic and financial stability.

Latest News on Indian Economy: Indian economy to grow by 6.3% in FY24 and FY25: IMF

Indian economy growth - representative image
Indian economy growth – representative image

According to the Article IV consultation conducted by the Executive Board, India’s economy exhibited robust growth in the past year. Headline inflation, on average, moderated despite remaining volatile, and employment surpassed pre-pandemic levels. The informal sector continues to dominate, but there has been progress in formalisation.

India could achieve even higher growth

The IMF praised the government’s macroeconomic policies and reforms, suggesting that India could achieve even higher growth with increased contributions from labour and human capital through structural reforms. The foundational digital public infrastructure and a robust government infrastructure program were acknowledged as factors that would sustain growth.

However, the IMF’s growth projection is notably lower than the Reserve Bank of India’s Monetary Policy Committee’s forecast of 7% for FY24. The Indian economy averaged 7.7% growth in the first two quarters due to robust consumption demand and rising investment.

The IMF emphasised that stronger-than-expected consumer demand and private investment could boost growth. Further liberalisation of foreign investment might increase India’s role in global value chains, enhancing exports. Labour market reforms could also contribute to increased employment and growth.

IMF expects investment to rise to 31.9% of GDP by FY25, with savings increasing to 30%.

The multilateral body expects investment to rise to 31.9% of GDP by FY25, with savings increasing to 30%. However, it cautioned that a sharp global slowdown could impact growth, and weather shocks could affect inflation.

Regarding inflation, India experienced a rise to 5.6% in November, following a decline to 4.9% in the previous month. The IMF anticipates inflation to decrease to 5.4% in FY24 from 6.7% in the last year, further falling to 4.6% in FY25.

Government aims to reduce the fiscal deficit to 4.5% of GDP by FY26

On the fiscal front, the IMF welcomed the government’s efforts to increase capital spending while tightening the budgetary stance. Directors highlighted the importance of improving revenue mobilisation spending efficiency and the need to establish a sound medium-term fiscal framework. The government aims to reduce the fiscal deficit to 4.5% of GDP by FY26, with the IMF projecting achievement of the fiscal deficit target of 5.9% in FY24 and a marginal decline to 5.6% in FY25.

The IMF also called for prudential tools to preserve financial stability, including addressing rapid growth in unsecured personal loans. The Reserve Bank of India has recently tightened underwriting norms for unsecured loans.

Regarding climate resilience, the IMF supported the government’s efforts to design and implement climate policies, emphasising their critical role in achieving the net-zero emissions target by 2070.

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Vanesh

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