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IMF raises India GDP forecast by 20 bps to 7% for FY25
Context: The International Monetary Fund (IMF) revised upward its projections for India’s GDP growth in the fiscal year 2024-25 (FY25) to 7%, up from its previous estimate of 6.8%.
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- This upward revision reflects positive carryover effects from upward revisions to India’s growth in 2023 and improved prospects for private consumption, particularly in rural areas.
- For the following financial year (FY26), the IMF has maintained its growth projection at a slower rate of 6.5%.
Reasons for Upward Revision:
- The improved consumption prospects, particularly in rural regions, are expected to bolster India’s economic growth in FY25.
- The forecast for growth in emerging markets and developing economies has been revised upward, largely due to stronger activity in Asia.
- India and China are key contributors to global economic growth, accounting for almost half of it.
Risks and Policy Recommendations:
- Persistent inflation in the services sector is complicating monetary policy normalisation, leading to prolonged higher interest rates amidst rising trade tensions and increased policy uncertainty.
- To manage these risks and preserve growth, the policy mix should be sequenced carefully to achieve price stability and replenish diminished buffers.
World Economic Outlook:
- Overall, global growth projections remain steady, aligning with the April 2024 World Economic Outlook forecast of 3.2% for 2024 and 3.3% for 2025.
- Asia, particularly China and India, drives global growth, accounting for nearly half of it.
- However, Emerging Asia’s long-term growth prospects look weaker, with China’s growth projected to moderate to 3.3% by 2029, lower than its current rate.
- The International Monetary Fund’s (IMF) World Economic Outlook report is released twice a year.
Gross Domestic Product (GDP):
- It represents the total value of goods and services produced within a country’s borders over a specific period, typically a year.
- The GDP growth rate serves as a crucial measure of a nation’s economic performance.
- In India, GDP contributions are categorised into three main sectors: agriculture and allied services, industry, and the service sector.
Calculation of GDP:
- Expenditure Method: This method assesses the total expenditure on goods and services within a country.
- It includes consumption expenditure (C), investment expenditure (I), government spending (G), and net exports (exports minus imports, X-IM).
- GDP (as per expenditure method) = C + I + G + (X-IM)
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- Income Method: This method quantifies the total income earned by labour and capital within a country’s borders.
- It calculates GDP at factor cost by adding taxes and subtracting subsidies from the total income.
- Income Method: This method quantifies the total income earned by labour and capital within a country’s borders.
- GDP (as per income method) = GDP at factor cost + Taxes – Subsidies.
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- Output Method: This method calculates the monetary value of all goods and services produced within a country’s borders.
- To adjust for price changes and provide a more accurate measure, GDP at constant prices, or real GDP, is computed by subtracting taxes and adding subsidies to the nominal GDP.
- Output Method: This method calculates the monetary value of all goods and services produced within a country’s borders.
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- GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.
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- GDP is measured at market prices, with the base year for computation set at 2011-12.
- The most important economic indicator, Gross Domestic Product (GDP) is mostly made up of GVA.
- GDP is Gross Value Added (GVA) plus product taxes minus product Subsidies
Gross Value Added (GVA):
- It represents the value that producers add to the goods and services they purchase.
- When they sell these products, producers’ income should exceed their costs, with the surplus reflecting the value they have created.
- GVA excludes depreciation (consumption of fixed capital), employee compensation, taxes, interest on loans (investment income), and long-term investments from total output.
- It can be calculated in two ways
- First by subtraction:
- Total Output (similar to turnover) Minus total Intermediate Consumption (cost of goods and services).
- It can also be calculated by addition:
- Gross Operating Surplus and Gross Mixed Income (like profit) Plus Compensation of Employees (like wages and salaries).
- First by subtraction:
