IMF warns of ‘Significant Indian slowdown’, calls for urgent action

Ranil Salgado said India’s central bank has “room to cut the policy rate further, especially if the economic slowdown continues”

Washington: On Monday the International Monetary Fund said India must take steps speedily to reverse the slowdown of an economy that has been one of the engines of global growth.

The IMF said in its annual review that declining consumption and investment, and falling tax revenue, have combined with other factors to put the brakes on one of the fastest-growing economies in the world.

After lifting millions out of poverty “India is now in the midst of an important economic slowdown,” Ranil Salgado said to media, the IMF Asia and Pacific Department.

“Currently the downturn and returning India to a high growth path requires immediate policy actions.”

However, the fund warned, the government has limited space to boost spending to support growth, especially given high debt levels and interest payments.

Last week IMF chief economist Gita Gopinath said India’s economic slowdown had “surprised to the downside,” and said the fund is set to significantly downgrade its growth approximately for the Indian economy in the World Economic Outlook which will be released next month.

While cutting the outlook for 2020 to 7.0 percent, in October the IMF slashed its forecast for 2019 by nearly a full point to 6.1 percent.

Ranil Salgado said India’s central bank has “room to cut the policy rate further, especially if the economic slowdown continues.”

The Reserve Bank of India (RBI) cut the key lending rate five times this year to a nine-year low, but at its last meeting, earlier this month defied expectations by not changing the policy.

The RBI slashed its annual growth forecast to 5 percent from 6.1 percent, as consumer demand and manufacturing activity contracts.

According to government data, India’s economy grew at its slowest pace in more than six years in the July-September period, down to 4.5 percent from 7.0 percent a year ago.

Salgado said “the government needs to strengthen the reform agenda,” including restoring the health of the financial sector in order to “enhance its ability to provide credit to the economy.”

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