India should choose fiscal, monetary policy carefully to support ‘bright spot’ growth forecast: IMF

Even as it praised India’s growth rate forecasts of 6.8% in FY22-23 and 6.1% in FY23-24, the International Monetary Fund (IMF) cautioned that there was limited policy space given overall global conditions. With downgrades in growth forecasts from June, and a slowdown predicted next year, a growth rate next fiscal year of 6.1% for India was “still a bright spot”, Anne-Marie Gulde-Wolf, Deputy Director of the Asia and Pacific Department said at a press conference on Thursday evening at the IMF’s headquarters here.

“But, it’s absolutely true that one needs to look at what else can be done,” she said in response to a question from The Hindu on what India could do to counter or mitigate the slowdown (to 6.1%) next fiscal year.

The IMF does not see “a lot of room” for fiscal support given the level of debt, so any further fiscal support would have to be “very targeted” and also time-limited, Ms. Gulde-Wolf said, adding that monetary policy, too, had to have a “tightening bias”.

“But it is important to… whatever can be done on the structural front, to not create impediments for growth and to try and also create an expectation of continued forward movement,” she said.

Asia-Pacific growth expected at 4% in 2022

Growth for the Asia and Pacific region as a whole was expected to come in at 4.0% and 4.3% in 2022 and 2023 respectively. This is much lower than the 5.5% average growth over the previous two decades, but the region continues to perform better than the rest of the globe, Krishna Srinivasan, who heads the Asia and Pacific department at the IMF, told reporters on Thursday.

The IMF recommended monetary tightening and fiscal consolidation for the region, Mr. Srinivasan said, with the exception of China and Japan, “where the recovery has been weaker, slack remains substantial, inflation has not risen as sharply as elsewhere, and policy space exists”. 

The U.S.’s monetary tightening, which has led to wide interest rate differentials has been the primary factor behind Asian currencies depreciating “quite sharply”, Mr. Srinivasan said.

At her opening press conference on Thursday, IMF Managing Director Kristalina Georgieva had commented positively on India’s growth. “India deserves to be called a bright spot on this otherwise dark horizon because it has been a fast-growing economy, even during these difficult times, but most importantly, this growth is underpinned by structural reforms.“ Ms. Georgieva had also said that India takes on the G20 Presidency (for 2023) from “a position of strength”.