IMF thinks India will fare better than most other major economies in 2022

IMF thinks India will fare better than most other major economies in 2022
Image: REUTERS/Shailesh Andrade
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The International Monetary Fund (IMF) has cut India’s GDP forecast to 8.2%, from the earlier projected figure of 9%. This, however, is far better than its estimates for other major economies like the US, China, and Japan.

The multilateral body expects a “severe setback to the global recovery” from disruptions caused by the Russia-Ukraine war.

“Notable downgrades to the 2022 forecast include Japan and India, reflecting in part weaker domestic demand—as higher oil prices are expected to weigh on private consumption and investment—and a drag from lower net exports,” the IMF said.

India, however, is projected to remain the world’s fastest-growing major economy. The 0.8 percentage point cut in its GDP, as forecast by the IMF, is sharply lower than the 3.7 percentage point reduction in China’s.

Rate increases in the US may push consumer prices

The IMF report has flagged possible rate increases by central banks of developed economies. Such a move by, say the US Federal Reserve, would lead to imported inflation in emerging markets. In India, this could account for a 1-2 percentage points increase in price rise, according to the Reserve Bank of India’s (RBI) approach.

The surge in crude oil prices has already stoked retail inflation to a 17-month high in India. IMF sees the figure to average 6.1% in the current financial year, breaching RBI’s 6% cap. It may ease to 4.8% in 2023-24.

A heavier import bill will also worsen India’s current account deficit, the difference between a country’s import and export bills, and lead to the rupee’s further slide.