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Another grim reminder: On IMF’s GDP projections
Sharp cuts in growth forecast by the IMF and World Bank underline slowdown’s severity
The IMF on Tuesday followed the World Bank in reducing 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 (large in value or size) 0.9 percentage point to 6.1%, the bank slashed the estimate by as much as 1.5 percentage points to 6%. These magnitudes of reduction underscore (emphasizing the importance of something) the severity (seriousness) of the ongoing slowdown and affirm (to state something is true) the welter (a large and especially badly organized number of things) of grim (piece of information that is unpleasant, depressing, and difficult to accept) data and predictions from other forecasters, both global and domestic. Interestingly, by the bank’s own admission, its forecast is more optimistic than the average estimate of 32 Indian respondents (a person who answers a request for information) who were polled as part of its South Asian Economic Policy Network Survey: these economists expect growth to be 5.7% this fiscal. The only significant issue of debate is over the cause of the malaise (an uncomfortable feeling that something is wrong, especially with society, and that you cannot change the situation), with the World Bank largely echoing (to repeat details that are similar to, and make you think of, something else) what the Centre’s economic mandarins have been saying — that this is a cyclical slowdown, exacerbated (to make something that is already bad even worse) by global influences. A view, however, that neither the Indian experts surveyed, nor Moody’s Investors Service, broadly concur with. While Moody’s pared its projection to 5.8%, ascribing (to consider something to be caused) the downturn partly to “long-lasting factors”, only 10% of the respondents in the network survey considered it a “purely cyclical” development and as many as 25% saw structural factors as being solely responsible. The importance of an accurate diagnosis cannot be overemphasised since policy interventions to address the malady (a problem within a system) must be targeted appropriately to ensure enduring (lasting over a period of time) outcomes.
Crucially, the bank and the fund have flagged (to put a mark on something) one area of structural weakness that could undermine any recovery if left unaddressed. Asserting (to say that something is certainly true) that the weak financial sector is becoming a drag on momentum, with the country’s banks yet to regain vigour (strength) from the depressing burden of bad loans, the World Bank warned that non-banking financial companies’ significant share in total credit and their linkages with banks “pose broad-based contagion risks (the risk that financial difficulties at one or more bank(s) spill over to a large number of other banks or the financial system as a whole)”. Financial sector reforms, the bank suggests, would not only help resolve the sectoral infirmities (illness, especially for long periods) but would also help put India back on a rapid growth path. The World Bank has also highlighted another key concern. Observing that a sharper-than-expected slowdown in major economies such as the U.S. and Eurozone could have severe spillover (the effects of an activity that have spread further than was originally intended) 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. In the case of a Chinese GDP shock, the onset (moment of an unpleasant beginning) of the impact on India would likely be delayed but substantially more pronounced. And while the IMF has urged structural reforms in labour and land laws to boost job and infrastructure creation, everyone agrees that becalmed (something not progressing at all, although it should be) domestic consumption demand is the biggest drag on momentum. It may, therefore, make a lot of sense to heed (to pay attention to something) Nobel laureate Abhijit Banerjee’s prescription and put more money in the hands of consumers, especially those in the rural hinterland, to reinvigorate (to make something more exciting and successful again) demand.
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