Abrupt Slowdown In Indian Economy Due To Demonetization, GST: IMF Chief
On the eve of the Union Budget 2020 on February 1, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, said, "The Indian economy witnessed an 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."
Talking about the recent growth projections by the IMF, Georgieva 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."
She stated that the primary reason for the slowdown was the turbulence in non-banking financial institutions.
The Indian economy grew 4.5% in September quarter last year, marking the slowest fall in six years.
Last month, the government data pegged 5% GDP growth rate for 2019-20, the slowest in 11 years. The Economic Survey for 2020-21 also predicted the GDP to grow between 6% and 6.5% during the financial year 2020-21.
Georgieva also expressed concerns over India's recent crucial reforms, like GST and demonetization, that would be advantageous for the country in the longer run, but would 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 the short term," Georgieva said.
"There is not a lot of fiscal space in India. But we also recognise that the policies of the government on that side have been prudent. We will see how the reading of the budget, the submission of the budget goes, tomorrow," she said.
Describing the current scenario, Georgieva said that the ongoing economic slowdown cannot be described as a recession.
She also claimed that the consumption in India slowed down which in turn led to the overall slowdown in the economy.
Sharing her expectations from the Union Budget 2020, Georgieva said that the IMF is keen to see what India does to get sound macroeconomic fundamentals that can pay off in terms of better growth trajectory.
One thing that is important for India is that budgetary revenue has been below target, Georgieva said, adding, "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."
The IMF managing director also said that the IMF sees an upswing potential for India's growth.