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Published On: Sun, Oct 20th, 2019

India’s Growth Could Return To 7% In 2020: IMF’s Gita Gopinath

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gitagopinath-kEcH--621x414@LiveMintNEW DELHI : The International Monetary Fund (IMF) has projected India’s economy to grow to 7 per cent in 2020 after downgrading it to 6.1 per cent this year, its Chief Economist Gita Gopinath told NDTV in an exclusive interview in the US.

“It’s a little less optimistic than we were a few months ago. It’s down .50 per cent from our previous forecast,” she said. The IMF’s higher projection for India’s economic growth for 2020 comes amid a severe stress in key sectors in India, from manufacturing to finance, and concerns about the weakening lending abilities of small financial institutions that give a bulk of loans to consumers.

“India got hit on many fronts (in 2019). We think of this (slowdown) as a cyclical downturn. We have downgraded India’s growth significantly for 2019 to 6.1 per cent. However, we are projecting it back to 7 per cent in 2020,” said the Mysore-born economist who joined the IMF in January, becoming the first woman to occupy that post in the international organisation.
“There is weakness in rural income growth. There are issues with the non-banking financial sector,” she said, adding some “regulatory uncertainties” continue to hurt the auto and real estate sectors.

“These factors have led to weakness in the domestic economy, both on investment and consumption,” Ms Gopinath, 47, told NDTV.  Gita Gopinath told there is weakness in rural economic growth
The IMF chief economist said she believes the corporate tax rate cut announced by Finance Minister Nirmala Sitharaman last month was a move in the right direction. “The recent corporate tax cuts and recent policies to help rural income growth, all of these should help with recovery,” Ms Gopinath said.
Analysts have, however, cautioned against a widening fiscal deficit due to lower tax revenue, an issue that Ms Sitharaman said the government led by Prime Minister Narendra Modi is aware of. Fiscal deficit is the shortfall in the government’s income compared with its spending.
“We are conscious of the impact all this (corporate tax rate cut) will have on our fiscal deficit,” Ms Sitharaman said on the day she announced the relief for businesses. On whether the 6.1 per cent economic growth projection by the IMF for 2019 could be an overestimation, Ms Gopinath said, “We think these are the numbers that will play out.”
India’s big informal sector, however, adds layers of difficulties in measuring the country’s gross domestic product (GDP) accurately, Ms Gopinath said. “There are always risks to the outlook and things might change. It’s always a challenge to measure the gross domestic product of India because of the big informal sector,” she told NDTV.

Critics of the overnight ban on high-value notes in November 2016 say it was the informal sector that was hurt the most as cash was king for this sector that comprises workers and very small businesses who have no link with the formal economy.

Before joining the IMF, Ms Gopinath was the John Zwaanstra professor of International Studies and Economics at Harvard University in the US. She succeeded Maurice Obstfeld, who retired in December last year. When she took charge at the international organisation, Ms Gopinath had said she considered the perceived retreat from globalisation as one of the top challenges being faced by the IMF.
IMF chief economist Gita Gopinath had said on Tuesday that the global economy is in a synchronized slowdown and the fund is downgrading global growth for 2019 to 3%, the slowest pace since the 2008 financial crisis. “Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions.

We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8% by 2020. Growth is also being weighed down by country-specific factors in several emerging market economies, and structural forces such as low productivity growth and ageing demographics in advanced economies,” she said.

The Fund has pared down its growth projection for India to 6.1% for 2019-20 from 7% estimated in July, citing a sharper-than-expected demand slowdown.
(With NDTV inputs ).

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