Growth Forecast by IMF and World Bank

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Context:

  • The IMF and the World Bank reduced its forecast for India’s economic growth in the current financial year
  • While the IMF cut its July projection for real GDP growth by a substantial 0.9 percentage point to 6.1%, the bank slashed the estimate by as much as 1.5 percentage points to 6%

Reasons for a reduction in forecast

  • Overall Global Scenario-These magnitudes of reduction underscore the severity of the ongoing slowdown and affirm the welter of grim data and predictions from other forecasters, both global and domestic
  • Weak Financial Sector and Lack of Regulation-The weak financial sector is becoming a drag on momentum
  • Problem of NPA-The country’s banks yet to regain vigour from the depressing burden of bad loans
  • Domino of the World Slowdown-The World Bank warned that non­banking financial companies’ significant share in total credit and their linkages with banks “pose broad­based contagion risks”. Observing that a sharper­ than ­expected slowdown in major economies such as the U.S. and Eurozone could have severe spillover impacts, the bank noted that India was vulnerable to being affected immediately and over a longer duration by real GDP shocks in these advanced economies
  • Low Consumption Expenditure-The becalmed domestic consumption demand is the biggest drag on momentum

Reforms that can be taken

  • Financial sector reforms, World Bank suggests, would not only help resolve the sectoral infirmities but would also help put India back on a rapid growth path
  • The IMF has urged structural reforms in labour and land laws to boost job and infrastructure creation
  • It may, therefore, make a lot of sense to heed Nobel laureate Abhijit Banerjee’s prescription and put more money in the hands of consumers, especially those in the rural hinterland, to reinvigorate demand



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