The International Monetary Fund (IMF) on Monday slashed growth forecast for India and rest of the world. With this, IMF became the first global agency to project a sub-5 percent gross domestic product (GDP) growth rate for India this financial year.

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In its latest World Economic Outlook (WEO) Update for January, the global financial institution forecast a sharp 130 basis point cut in India's GDP growth to 4.8 percent from its October projection of 6.1 percent .

IMF cited the sharp cut to India's forecast as a key reason for slashing its global and emerging market forecast.

Gita Gopinath, chief economist of IMF said: "We are projecting a modest recovery in growth. For growth to increase from 2.9 percent in 2019 to 3.3 percent in 2020 and 3.4 percent in 2021. The slight downward revision of 0.1 percent for both 2019 and 2020 and of 0.2 percent for 2021 is owed largely to downward revision for India."

She further added: "In India, the first two quarters of fiscal year 2019-20 came in much weaker than expected. An important reason for this is stress in the financial sector, particularly in the non-bank financial sector, and because of which there has been a sharp slowing of credit growth."

Gopinath said, “There is simply no room for complacency, and the world needs stronger multilateral cooperation and national-level policies to support a sustained recovery that benefits all.”

In addition to that, there was weak rural income growth that also effected domestic demand. In the case of India, IMF projected a recovery in the next financial year (FY2020-2021).

Recovery in the economy would come from the monetary stimulus that has been put in the system and some of it from corporate tax cut, it said.

First Published:Jan 20, 2020 9:21 PM IST