Statement by the IMF Staff Representative November 25, 2019

2019 Article IV Consultation-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for India


2019 Article IV Consultation-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for India

1. This statement contains information that has become available since the staff report was circulated. This information does not alter the thrust of the staff appraisal, but if the current trends were to continue, the growth projections for India in the Staff Report would likely be too optimistic.

2. Recent data releases suggest that the cyclical weakness of the Indian economy may be more pronounced and more prolonged than envisaged in staff projections:

  • The staff report projects growth at 6.1 percent in FY2019/20 (April 2019-March 2020). As explained in the staff report, this is predicated on an acceleration of economic growth during the second half of the fiscal year (October-March) supported by the lagged effects of monetary policy easing, the recent reduction in corporate income tax rates, and government policies to support rural incomes and consumption.

  • National accounts data for the July-September 2019 quarter will be released on November 29. However, available high-frequency data, including on industrial production, bank credit, and imports and exports, as well as data on sales and profits reported by listed companies indicate that growth remained weak during the quarter.

  • Early indicators for the October-December 2019 quarter do not yet point to the onset of a cyclical recovery as envisaged in the staff report projections. The U.S. dollar-value of non-oil merchandise exports firmed, expanding by 1.4 percent in October (y/y), following a 2.2 percent contraction during the July-September quarter (y/y). However, the continued weakness of domestic demand was exemplified by the deceleration of core inflation (defined as CPI inflation excluding the categories food and beverages, and fuel and light) from 4.2 percent in September (y/y) to a multi-year low of 3.3 percent in October (y/y) as well as a continued weakness of non-oil imports. The U.S. dollar value of non-oil imports declined by 9.2 percent in October (y/y) compared to an 11.3 percent decline during the July-September quarter (y/y).

  • The weakness of domestic demand, alongside the relative stability of international oil prices and continued portfolio inflows on global investors’ increasing interest in emerging markets assets, have contributed to a further strengthening of India’s balance of payments. Since the issuance of the staff report in mid-October, the Indian rupee/U.S. dollar exchange rate has moved within a narrow range and central bank gross reserves rose to a new record high of US$448 billion on November 8.