Slowdown Blues: India is falling behind emerging economies, suggests IMF report

India's gross domestic product (GDP) growth premium over the emerging economies (EMs) is seen dipping to a seven-year low of 1.1 per cent in the current fiscal 2019-20 (FY20), mainly due to slower demand growth, weak investment, credit issues, currency fluctuations, and rising inflation, as per the data released by the International Monetary Fund (IMF).  India's growth deceleration seems worse, when compared to developed economies of Europe, United States and Japan. The growth premium is expected to hit an eighteen-year low against developed economies.

India's GDP at constant prices is likely to grow by 5 per cent in FY20, compared to 3.9 per cent growth in EMs in the calendar year (CY) 2019. This pace of growth will place India, which was the world's fastest-growing major economy last year, behind emerging economies. India's growth premium over EMs is likely to be lowest since 2012-13, when it had hit record low of 0.1 per cent, reported Business Standard.

As per the report, India's GDP growth over the last two years is down nearly 220 basis points (bps, or bips), as compared to 85 bips in EMs.

Meanwhile developed economies and the US are seen expanding by 1.7 per cent and 2.35 per cent during CY18, down by 80 bips and 2 bips, compared to the highs of CY17. However, India's growth premium is likely to slip by 330 bips in FY20 as compared to developed economies, which would be the lowest level since FY03, when it had touched a low of 210 bips.

Also Read: IMF flags issues with India's GDP calculation method; says it's complex

Recently, IMF, in its annual staff report on India, had raised concerns over India's methodology to calculate GDP numbers, saying certain changes to historical series and discrepancies between GDP by activity and GDP by expenditure have made the growth calculation process complex.

The global body pointed out discrepancies in calculating deflation, which is used to convert GDP at current prices to constant prices. The body said the compilation of constant price GDP using WPI (Wholesale Price Index) as a deflator instead of PPI (Producer Price Index) for many activities makes the process complex, as it can't capture certain services uniformly.

Also Read: UN lowers India's growth forecast for FY20 to 5.7%

The IMF also asserted that India is now in the midst of a significant economic slowdown, and urged the government to take urgent policy actions to address the current prolonged downturn. The report said though India's rapid economic expansion in recent years lifted millions of people out of poverty, a combination of factors led to subdued economic growth in India in the first half of 2019.

As per the first advance estimates of the national income released by the National Statistical Office (NSO), India's GDP growth may fall to an 11-year low of 5 per cent in the current fiscal, mainly due to poor showing by manufacturing and construction sectors. According to back series GDP data released by the government in November 2018, the previous low in economic growth was recorded at 3.1 per cent in 2008-09.

By Chitranjan Kumar