India must take steps quickly to reverse the economic slowdown of an economy that has been one of the engines of global growth, the International Monetary Fund (IMF) said on Monday, December 23.

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, the IMF said in its annual review.

India should avoid a fiscal stimulus to spur the economy, and focus on cutting public debt so that financial resources can be freed up for investment, the IMF said.

After pulling millions out of poverty “India is now in the midst of a significant economic slowdown”, Ranil Salgado of the IMF Asia and Pacific Department told the media. “Addressing the current downturn and returning India to a high growth path requires urgent policy actions.”

The report said that the “recent labour market data suggests that unemployment is high while labour force participation has decreased, particularly for females in India.”

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

IMF’s chief economist Gita Gopinath, on December 17 said that India’s slowdown had “surprised to the downside”. She also said that the Fund is all set to significantly downgrade its growth estimates for the Indian economy in the World Economic Outlook which will be released next month.

The IMF in its October forecast had projected 6.1 per cent growth for India in 2019 and the same to go up to 7 per cent in 2020.

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 cut the lending rate five times this year to a nine-year low and also slashed its annual growth forecast to 5 per cent from 6.1 per cent, as consumer demand and manufacturing activity contracted.

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

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

Also Read: India’s Growth Forecast Likely To Be Significantly Cut In January: IMF Chief Economist Gita Gopinath