Indian economy is likely to log 6.3% growth in FY24 and FY25 on the back of macroeconomic and financial stability, International Monetary Fund’s Executive Board said Tuesday.
“India’s economy showed robust growth over the past year. Headline inflation has, on average, moderated although it remains volatile. Employment has surpassed the pre-pandemic level and, while the informal sector continues to dominate, formalisation has progressed,” the Article IV consultation conducted by its Executive Board noted.
The international fund lauded the macroeconomic policies and reforms of the government, stating that India could achieve even higher growth, with greater contributions from labour and human capital, with the implementation of structural reforms.
“The country’s foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth,’ it said.
IMF’s growth projection is much lower than the Reserve Bank of India’s Monetary Policy Committee growth forecast of 7% for FY24. The MPC revised its growth numbers in December owing to a strong performance in the first half.
The Indian economy averaged 7.7% growth in the first two-quarters of the fiscal due to strong consumption demand and rising investment.
“Stronger than expected consumer demand and private investment would raise growth. Further liberalization of foreign investment could increase India’s role in global value chains, boosting exports. Implementation of labour market reforms could raise employment and growth,” the IMF said.
The multilateral body expects investment to rise to 31.9% of GDP by FY25 and savings to rise to 30%.
However, it also noted that a sharp global slowdown could affect growth and weather shocks could impact inflation.
India’s inflation rose to 5.6% in November after declining to 4.9% in the previous month because of a rise in food prices. Food price shock is likely to keep inflation around the 6% level in December as well, say experts.
IMF expects inflation to decline to 5.4% in FY24 from 6.7% in the previous year. It is further expected to fall to 4.6% in FY25.
“Directors commended the Reserve Bank of India’s (RBI) proactive monetary policy actions and strong commitment to price stability. They agreed that the current neutral monetary policy stance, anchored on a data-dependent approach, is appropriate and should gradually bring inflation back to target,” the report noted.
The MPC kept the policy rate on hold at 6.5% for the fifth consecutive time at its December meeting.
The IMF also called for prudential tools to preserve financial stability and manage emerging vulnerabilities, including rapid growth in unsecured personal loans.
The Reserve Bank of India recently tightened underwriting norms for unsecured loans.
Fiscal steadiness and climate resilience
On the fiscal front, the IMF welcomed the government’s efforts to ramp up capital spending while tightening the fiscal stance.
“Improving revenue mobilization and spending efficiency would allow for continued improvements in digital and physical infrastructure and targeted social support,” the directors pointed out.
They also highlighted the need to establish a sound medium-term fiscal framework.
The government plans to reduce the fiscal deficit to 4.5% of GDP by FY26. The IMF projects the government to achieve its fiscal deficit target of 5.9% in FY24 but a marginal decline to 5.6% in FY25.
“Continued progress on designing and implementing climate policies is also critical to meet the authorities’ net zero emissions target date,” the directors said, batting for greener growth.
India has set a net zero target for 2070.
On growth track:
-GDP growth stable at 6.3% for FY24 and FY25
-Inflation to decline to 4.6% in FY25
-Fiscal deficit target to be met
-Need structural reforms in land and labour
-Infra push and digital public infra to sustain growth
| FY23 | FY24 | FY25 | |
| GDP growth (%, y-o-y) | 7.2 | 6.3 | 6.3 |
| Inflation (%, y-o-y) | 6.7 | 5.4 | 4.6 |
| Fiscal deficit (% of GDP) | 6.4 | 5.9 | 5.6 |
| Source: IMF |
