The IMF has corrected India’s projected economic growth to become a $5 trillion economy up from FY29 to FY27.
One of the the main reasons for this change is that rupee depreciation has now been expected to be lower than expected earlier.
Rupee depreciation takes place in 2 ways
1)Steady state - this is the normal decline in the rupee against the dollar since India is a net importer (imports more than exports).
1)Steady state - this is the normal decline in the rupee against the dollar since India is a net importer (imports more than exports).
2)Crisis - We can see that with the current crisis, foreign investors are pulling their money from India, greater demand for safe haven assets like dollar and high import costs means more dollars needed.
It is believed that when the IMF was taking rupee depreciation to project India’s GDP in USD terms, they included rupee depreciation under crisis instead of just steady state data which should be used when making steady projections
This data has been corrected and based on these new inputs, India can be a $5 trillion economy by FY27 instead of FY29 as per IMF.
The IMF has been wrong on other occasions as well.
For example, in November 1996, the IMF had applauded ASEAN’s sound fundamentals and economic growth. By July 1997, the Great Asian Crisis had started which sent Asian economies into a shock..
For example, in November 1996, the IMF had applauded ASEAN’s sound fundamentals and economic growth. By July 1997, the Great Asian Crisis had started which sent Asian economies into a shock..
However, this also shows that it is open minded and willing to accept when it's wrong. The newer assumptions are more in sync with our own government’s assumptions about growth, inflation in India and the US, and exchange rate movement.
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