IMF Sees India's Economic Risks Rising Amid Global Uncertainty
(Bloomberg) -- India's world-beating economic growth faces headwinds from geoeconomic fragmentation and slower domestic demand, and it should implement crucial structural reforms to realize its ambition of becoming a developed country, according to the International Monetary Fund.
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Intensification of regional conflicts, volatile commodity prices, weakened international cooperation and cyberthreats pose high risk to India's growth, the IMF said in its Article IV country report released Thursday.
The Washington-based lender expects India's gross domestic product to expand 6.5% for the current financial year as well as the next one, and said risks to the economic outlook are 'tilted to the downside.'
On the domestic front, recovery in private consumption and investment could be weaker than anticipated if real incomes do not rebound, the report said. Weather shocks could also adversely impact agricultural output, lifting food prices and weighing on the recovery in rural consumption, it added.
To reach its full potential, the IMF said India should accelerate implementation of structural reforms, diversify and secure supply of critical commodities and 'avoid introducing further trade restrictions.' The Indian government expects the country to grow at 6.4% for the current year and between 6.3%-6.8% for the next fiscal.
While the lender commended the Reserve Bank of India's 'well-calibrated monetary policy,' it said that opportunities could arise to gradually lower the policy rate further. Earlier this month, the central bank had cut interest rates for the first time since 2020. Monetary policy should remain 'data-dependent and well communicated,' the IMF said.
The report called for greater exchange rate flexibility to help absorb external shocks, with intervention limited to addressing disorderly market conditions. Greater exchange rate flexibility would reduce the need for holding costly precautionary forex reserves and promote market development, it said.
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