India’s growth rate to stay strong, current account deficit to dip: IMF report

New Delhi, Dec 19

India’s economic growth rate is expected to remain strong, supported by macroeconomic and financial stability, according to an International Monetary Fund (IMF) assessment report released on Tuesday.

“Going forward, the country’s foundational digital public infrastructure and a strong government infrastructure program will continue to sustain growth. India has potential for even higher growth, with greater contributions from labour and human capital, if comprehensive reforms are implemented,” the report stated.

The country’s current account deficit is expected to improve to 1.8 per cent of GDP in FY2023/24 as a result of resilient services exports and, to a lesser extent, lower oil import costs, the report adds.

It projects a real GDP growth rate of 6.3 per cent in FY2023/24 and FY2024/25 and states that “headline inflation is expected to gradually decline to the target although it remains volatile due to food price shocks”.

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 financial sector has been resilient -- strongest in several years -- and largely unaffected by global financial stress in early 2023, the report points out.

While the budget deficit has eased, public debt remains elevated and fiscal buffers need to be rebuilt.

Globally, India’s 2023 G20 presidency has demonstrated the country’s important role in advancing multilateral policy priorities, the report states.

Risks to the outlook are balanced. A sharp global growth slowdown in the near term would affect India through trade and financial channels. Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures for India.

Domestically, weather shocks could reignite inflationary pressures and prompt further food export restrictions, according to the IMF report.

On the upside, stronger than expected consumer demand and private investment would raise growth. Further liberalisation of foreign investment could increase India’s role in global value chains, boosting exports, it adds.

The IMF Executive Directors broadly agreed with the thrust of the staff appraisal. They commended the Indian authorities for their prudent macroeconomic policies and reforms that resulted in the economy’s strong economic performance, resilience, and financial stability, while also facing continued global headwinds.

Noting that India is one of the fastest growing economies globally, Directors called for continued appropriate policies to sustain economic stability and for further progress in key structural reforms to unleash India’s significant potential.

The directors welcomed the authorities’ near-term fiscal policy, which focuses on accelerating capital spending while tightening the fiscal stance.

The IMF Directors also commended the “RBI’s proactive monetary policy actions and strong commitment to price stability“.

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