IMF calls for 'urgent' action by India to reverse economic slowdown; says govt has limited options to boost spending amid high debt levels

  • Declining consumption and investment, and falling tax revenue, have combined with other factors to put the brakes on India, the IMF said

  • IMF chief economist Gita Gopinath last week said India's slowdown had surprised to the downside, and said the fund is set to significantly downgrade its growth estimates for the Indian economy

  • The IMF in October slashed its forecast for 2019 by nearly a full point to 6.1%, while cutting the outlook for 2020 to 7%

Washington: India's government must take steps quickly to reverse the economic slowdown of an economy that has been one of the engines of global growth, the International Monetary Fund (IMF) said on Monday.

Declining consumption and investment, and falling tax revenue, have combined with other factors to put the brakes on one of the fastest-growing economies in the world, the IMF said in its annual review.

After lifting millions out of poverty "India is now in the midst of a significant economic slowdown," Ranil Salgado, of the IMF Asia and Pacific department, told reporters.

"Addressing the current downturn and returning India to a high growth path requires urgent policy actions," Salgado said.

However, the government has limited space to boost spending to support growth, especially given high debt levels and interest payments, the IMF warned.

 IMF calls for urgent action by India to reverse economic slowdown; says govt has limited options to boost spending amid high debt levels

IMF chief economist Gita Gopinath last week said India's slowdown had "surprised to the downside," and said the fund is set to significantly downgrade its growth estimates for the Indian economy in the World Economic Outlook which will be released next month.

The IMF in October slashed its forecast for 2019 by nearly a full point to 6.1 percent, while cutting the outlook for 2020 to 7.0 percent. Salgado said India's central bank has "room to cut the policy rate further, especially if the economic slowdown continues."

The Reserve Bank of India (RBI) cut the key lending rate five times this year to a nine-year low, but at its last meeting earlier this month defied expectations by keeping policy unchanged. The central bank slashed its annual growth forecast to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contracts.

India's economy grew at its slowest pace in more than six years in the July-September period, down to 4.5 percent from 7.0 percent a year ago, according to government data. Salgado said "the government needs to reinvigorate the reform agenda," including restoring the health of the financial sector in order to "enhance its ability to provide credit to the economy."

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Updated Date: Dec 25, 2019 19:23:19 IST