Economic Slowdown-IMF report


1. Context:

  • World Economic Outlook(WEO) Report of IMF which downgraded India’s economic growth forecast to 6.1% from 7% for the year 2019-2020. Tag line of report is ‘Global Manufacturing Downturn, Rising Trade Barrirers.

2. What did the report say?

  • India’s growth projections downgraded to 6.1% from earlier 7% for 2019-20.
  • Global economy growth to be at 3% for 2019-20.The growth rate was 3.8% in 2016-17.
  • Forecast for improvement in global growth rate 3.4% by 2020-21.
  • Advanced economies growth will slow down by 1.7%
  • Growth in emerging and developing economies projected to pick up from 3.9% in 2018-19 to 4.6% in 2019-20.

3. Reasons for India’s slowdown

  • Corporate and environmental regulatory uncertainty.
  • Concerns about the health of the non-bank financial sector. Eg. IIFL default.
  • Rising trade barriers and increasing geopolitical tensions. Eg. US-China trade war. US-Iran tensions.
  • Internal issues like slowdown in auto industry due to emission standards changes, Electric Vehicle policy. Agricultural distress etc.

4. Solutions

  • Monetary policy and broad-based structural reforms. A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term.
  • Subsidy-spending rationalisation and tax-base enhancing measures. Eg. Greater use of DBT and
  • Strengthening of governance of public sector banks and the efficiency of their credit allocation.Reduction of public sector role in the financial system. Deepening of corporate bond market.
  • Labour reforms in hiring and termination. Job creation emphasis to get demographic dividend benefit.
  • Land reforms for faster infrastructure development. Removing bottlenecks in Infrastructure development like regulatory clearances, land acquisition etc.
  • Conclusion of trade deals like RCEP etc for faster trade.

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