The International Monetary Fund (IMF), has revised its growth projection for India, predicting a slowdown from 7 per cent in 2024, to 6.5 per cent in 2025. This adjustment points to challenges associated with subdued private investment and increased capital expenditure.
At a press briefing on October 24, 2024, during the IMF/World Bank Annual Meetings, Director of IMF’s Asia and Pacific Department, Krishna Srinivasan, and Division Chief, Thomas Helbling, presented key insights from the Regional Economic Outlook (REO) for Asia and the Pacific. The full REO report is set for release in Tokyo, Japan, on October 31, 9:30 PM ET (November 1, 10:30 AM JST).
The REO provides an in-depth analysis of recent economic trends, as well as forward-looking projections for countries across the region, examining the influence of policy changes on economic performance, and in parallel serving as a roadmap for policymakers navigating these complex economic conditions.
In his opening statement, Srinivasan emphasized, “Growth in India and China would remain resilient, even though both economies would slow slightly in 2025. With emerging markets outside China and India, we expect robust and broad-based growth.”
To a question about the impetus for downgrading India’s 2025 growth rate, Srinivasan told South Asian Herald, “We had growth at 7 per cent and starting next year, we’re going back to potential growth. In our estimates, potential growth for India is 6.5 per cent and we see the economy going back,” adding “Some of the issues we have in terms of risks, is that we see private investment still being quite weak in India. And that’s very important to make sure that the economy grows on a sustainable basis.”
He highlighted that while India has seen significant capital expenditure (CapEx) in infrastructure and related sectors, there remains a need for private investment to take a more active role—a shift that has yet to materialize. He emphasized that further reforms are essential.
Referring to insights from the Rio chapter, he underscored the “analytical role of structural transformation,” suggesting that many countries are now gravitating toward services-led growth. “I think in that context, there’s a lot of potential for India to benefit from that kind of growth. However, to benefit from that kind of growth, significant amount of investment has to take place in education and skilling of labor force.”
“We see India as the strongest growing emerging market economy this year, but also in the coming years,” added Helbling.
“For us, it’s about return back to potential after the pandemic,” he remarked, noting that India’s recent infrastructure investments, the post-pandemic rebound, and financial stresses have all fueled robust cyclical growth.
Helbling highlighted that India’s growth potential could be even greater with additional structural reforms. The India team has specifically pointed to labor market reforms, certain fiscal adjustments, and possibly a stronger infrastructure push. Moreover, reforms in education and workforce skilling could further boost growth.
Nepal
With reference to Nepal’s Extended Credit Facility (ECF), Helbling mentioned that Nepal has had this arrangement since January 2022. “So far, we have completed four reviews under the program, and discussions for the fifth review are underway,” he noted.
He added that ongoing talks with the new government reflect confidence in Nepal’s strong quantitative performance criteria. IMF’s discussions with the Nepal team are also focusing whether structural benchmark requirements have been met or if a recalibration of some benchmarks might be necessary.
Sri Lanka
Srinivasan noted that since 2022, Sri Lanka has made significant progress with reforms that have yielded hard-won gains. Growth has remained positive over the last four quarters, and inflation is decreasing.
“So, there was consensus with the new government, that it would like to safeguard and build on hard-won gains under the program,” added Srinivasan. “Under the program, we have elements which address some of the priorities of the new government, including in terms of social protection and so on. But the details on the program are continuing, and they’ll be happening this week in Washington.”
Regarding debt restructuring, Srinivasan highlighted that Sri Lanka has reached agreements with official creditors and has secured an agreement in principle with private creditors. The next crucial step is to formalize agreements with all creditors, marking a major milestone. However, he also emphasized that continued reform efforts are essential for achieving a path of robust and sustainable recovery.
Bangladesh
Srinivasan stated that the downgraded growth forecast for Bangladesh, was influenced by the need for additional grants sought by the interim government.
He explained, “Growth has slowed, inflation remains high,” adding that discussions are ongoing in both Dhaka and Washington, D.C., about the specifics of Bangladesh’s program and potential financing arrangements.
