Editorial: More gloom

Yet another international agency has now lowered India’s economic growth forecast. Contrary to the NDA government’s proud proclamations that the country would witness a high growth trajectory, one international organisation after the other has been downgrading India’s growth estimates. The latest to join the chorus is the International Monetary Fund (IMF) which has downgraded the […]

Yet another international agency has now lowered India’s economic growth forecast. Contrary to the NDA government’s proud proclamations that the country would witness a high growth trajectory, one international organisation after the other has been downgrading India’s growth estimates. The latest to join the chorus is the International Monetary Fund (IMF) which has downgraded the growth forecast to 6.8% in its latest World Economic Outlook, compared with 7.4% it had estimated earlier in July, citing the impact of external headwinds and weaker than expected second quarter growth. India’s retail inflation has been hovering at record levels of 7%, far above the Reserve Bank of India’s tolerance range of 4-6%, for eight consecutive months, largely led by higher food prices and pressures from the rising global oil and commodity prices. The RBI has also retained an inflation projection at 6.7% for the current fiscal year in its latest policy meeting. The IMF report estimates India’s current account deficit to widen to 3.5% of the GDP in 2022-23, from 1.2% last year, and narrow to 2.9% in FY24. The IMF also forecast a global slowdown to 3.2% in 2022 and 2.7% in 2023 from the 6% that was recorded in the previous fiscal. This is the weakest forecast since 2001 and the Covid-19-inflicted crisis. For India, several areas are causing concern, including high unemployment and soaring inflation. The services sector activity fell to a six-month low in September due to a cooling in demand amid soaring prices. High inflation and low demand have pulled India’s factory growth to a three-month low in September.

Earlier, the World Bank scaled down the forecast to 6.5% for the current fiscal from its earlier estimate of 7.5%, announced in June. The United Nations Conference on Trade and Development (UNCTAD) too had said the GDP growth is expected to decelerate to 5.7% in 2022 from 8.2% last year due to higher financing costs and weaker public expenditures. Earlier this month, the RBI had cut its growth forecast to 7% from an earlier estimate of 7.2% after increasing the repo rate by 50 basis points to 5.9% to fight inflation. The seasonally adjusted S&P Global India Services Purchasing Managers’ Index (PMI) fell to 54.3 in September, the weakest rate of expansion since March, from 57.2 in August. The PMI data, released every month, is an indicator of the overall health of the economy. Private sector sales rose at the weakest pace in six months, amid softer increases in the manufacturing and services economies. Hiring in the sector continued for the fourth month but fewer jobs were created compared with August. The RBI-led monetary policy committee hiked the repo rate by 50 basis points for the fourth time in a row on September 30, taking the policy rates to a three-year high of 5.9%.

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