International Monetary Fund Managing Director Kristalina Georgieva had recently stated that the current slowdown of the Indian economy cannot be described as a recession. She said that the economy is expected to return to an uphill trajectory in 2020 and 2021.
Turbulence in non-banking financial institutions
The Indian economy experienced a worse phase in 2019 as it observed some unexpected slowdown due to turbulence in non-banking financial institutions and major reform measures such as GST and demonetization, however, it is not in a recession, said Kristalina Georgieva.
“The Indian economy certainly has experienced an unexpected slowdown in 2019. We had to change our growth projections, downwards to 4% for last year. We are expecting 5.8% (growth rate) in 2020 and then an upward trajectory to 6.5% in 2021,” she told while addressing some foreign journalists.
A report said that she believes that the main reason for this slowdown was the non-banking financial institutions encountering turbulence.
“If you take an example, coming with the unified tax system, and the demonetization that took place. These are actions that over time are helpful, but of course, they might, might be somewhat disruptive over the short term,” she recommended.
Fiscal space in India
Kristalina Georgieva further explained that there is not a lot of fiscal space in India. Though we also know that the policies of the government on that side, on the fiscal side, have been cautious. We will see how the reading of the budget, the submission of the budget goes, tomorrow.
Meanwhile, the IMF remains positive about India. This is why we see that acceleration potential for the growth in the country, she said.
Georgieva, however, believes that the current economic slowdown cannot be reported as a recession. “No… You’re far from that. But it is a significant slowdown, not the recession,” she said.
Low rate of consumption
Further describing the decline of the economy, she regarded that the consumption in India also showed a massive dip and that added to the overall slowdown in the economy. She said that the IMF would be very interested to see what India proceeds to get approximately sound macroeconomic fundamentals to pay off in terms of better growth trajectory.
66 year old pointed out that India’s budgetary revenue has been below target. “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,” Georgieva said.