From UPSC perspective, the following things are important :
Prelims level : WEO report
Mains level : Economic slowdown in India
- In the gloomy global economic picture painted by the IMF, India retains its rank as the world’s fastest-growing major economy, tying with China.
Growth projections for India
- IMF has projected growth rate of 6.1 per cent for the current fiscal year, despite an almost one per cent cut in the forecast.
- The report projected India’s economy to pick up and grow by 7 per cent in the 2020 fiscal year.
- The world economy is projected to grow only 3 per cent this year and 3.4 per cent next year amid a “synchronised slowdown”.
- IMF’s projected growth rate of 6.1 per cent for 2019-20 is consistent with the Indian Monetary Policy Committee’s forecast.
Mapping the slowdown
- India’s economy decelerated due to sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of non-bank financial companies.
- It added that corporate and environmental regulatory uncertainty was other factor that weighed on demand.
- The global slowdown is due to rising trade barriers, uncertainty surrounding trade and geopolitics, and structural factors, such as low productivity growth and an aging population in developed countries.
Suggestions for India
- The IMF suggested that India should use monetary policy and broad-based structural reforms to address cyclical weakness and strengthen confidence.
- A credible fiscal consolidation path is needed to bring down India’s elevated public debt over the medium term.
- This should be supported by subsidy-spending rationalization and tax-base enhancing measures, said the report.
- Other measures it suggested included reducing the public sector’s role in the financial system, reforming the hiring and dismissal regulations that would help incentivise job creation and absorb the country’s large demographic dividend”, and land reforms to expedite infrastructure development.
Crisis looming on Auto Sector
- The auto sector is one of the areas seriously affected globally.
- Global car sales fell by three per cent last year, while the number of automobile units manufactured declined by 1.7 per cent, in value terms it fell by 2.4 per cent.
- The number of auto units produced by China fell by four per cent, its first decline in more than two decades, according to the WEO.
- It said the two main reasons for the decline of the auto sector were the removal of tax breaks in China and the rollout of new carbon emission tests in Europe.
- The auto industry had a large global footprint and vehicles and related parts are the world’s fifth largest export product, accounting for about 8 percent of global goods exports in 2018.