Washington: The Indian economy experienced some abrupt slowdown in 2019 due to turbulence in non-banking financial institutions and major reform measures such as GST and demonetisation, but it is not in a recession, IMF Managing Director Kristalina Georgieva has said.
"The Indian economy indeed has experienced an abrupt slowdown in 2019. We had to revise our growth projections, downwards to four percent for last year. We are expecting 5.8 per cent (growth rate) in 2020 and then an upward trajectory to 6.5 percent in 2021," Georgieva told a group of foreign journalists here on Friday.
"It appears that the main reason for this slowdown was the non-banking financial institutions experiencing a turbulence," she said on the eve of Union Finance Minister Nirmala Sitharaman presenting the annual budget in Parliament on Saturday.
She said India had undertaken some important reforms that over the longer term would be beneficial for the country, but they do have some short-term impact.
"For example, coming with the unified tax system, and the demonetisation that took place. These are steps that over time are beneficial, but of course they might, might be somewhat disruptive over short term," Georgieva said in response to a question.
The International Monetary Fund (IMF) Managing Director said that there is not a lot of fiscal space in India. "But we also recognise that the policies of the government on that side, on the fiscal side have been prudent. We will see how the reading of the budget, the submission of the budget goes, tomorrow," she said.
In the medium-term, she said, the IMF remains optimistic about India. "This is why we see that upswing potential for the growth in the country," she said.
Georgieva said that the current economic slowdown cannot be described as a recession. "No.... You're far from that. But it is a significant slowdown, not the recession," she said.
The IMF managing Director noted that the consumption in India also slowed down and that contributed to the overall slowdown in the economy. The IMF would be keen to see what India does to get relatively sound macroeconomic fundamentals to pay off in terms of better growth trajectory, she said ahead of the budget.
One thing that is important for India is that budgetary revenue have been below target. "The country knows that. The finance minister knows it. They need to increase budgetary revenue collection so they can improve their fiscal position. I said it's tight on the spending side, but I also want to stress that there is room to improve collection on the revenue side," she said.
Earlier, IMF had lowered growth estimate for India to 4.8 per cent for 2019, citing stress in the non-bank financial sector and weak rural income growth as the major factors for the downward revision. It expects growth to be 5.8 per cent in 2020 and rise to 6.5 per cent in 2021.
At Davos, Chief Economist of International Monetary Fund, Geeta Gopinath told India Today magazine that 80% of the global downward revision is on account of the sharp fall in India’s economic growth rate.
The WEO Update released in Davos, where the World Economic Forum is meeting, also indicated that India may be turning around after what it had said was one of the "negative surprises.
"Despite the cuts for India, it is the second-fastest growing major economy in the world after China this year and the next, and it is expected to overtake China in 2021.
China's growth rate projections are 6.1 per cent for 2019, 6 per cent in 2020 and 5.8 per cent in 2021. The growth rates of advanced economies are pathetic in comparison, although given their level of development, the low growth will not have the same impact.
The developed countries are estimated to have grown at 1.7 per cent last year and projected to grow at 1.6 per cent this year and the next.
