The International Monetary Fund (IMF) in its latest World Economic Outlook (WEO) has revised India's Gross Domestic Product (GDP) growth projection to 6.1% for the year 2019, which is 1.2% lower from its April projections of 7.3%. Though, it noted that the Indian economy is expected to pick up the next year at 7.0% in 2020. It said the downward revision relative to the April 2019 WEO of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand.
As per the report, going forward growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption. It noted that India's economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies. In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand.
IMF also said in India, monetary policy and broad-based structural reforms should be used to address cyclical weakness and strengthen confidence. A credible fiscal consolidation path is needed to bring down India's elevated public debt over the medium term. This should be supported by subsidy-spending rationalisation and tax-base enhancing measures. Governance of public sector banks and the efficiency of their credit allocation needs strengthening, and the public sector's role in the financial system needs to be reduced. Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country's large demographic dividend. Land reforms should also be enhanced to encourage and expedite infrastructure development.
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