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India's ambitious target of becoming a $ 5 trillion economy hit a major setback as the International Monetary Fund (IMF) predict that the country may only achieve the target by 2029 as against its earlier target of 2025.

India's nominal GDP is expected to rise to $4.92 trillion in FY28, as per data from the IMF's World Economic Outlook Database, which was updated last month. As a result, the GDP will not exceed $5 trillion until the following year, FY29. That's four years ahead of the Narendra Modi government's original plan. The IMF's projections for India do not extend past FY28.

International Monetary Fund (IMF)
Under the Fund's best-case scenario, the world is likely to lose a cumulative $9 trillion in output over two years - greater than the combined gross domestic product of Germany and Japan.Reuters

Following the release of the 2022 Budget, Finance Ministry officials hinted that the government's goal of boosting India's GDP to $5 trillion by FY25 would be postponed by a year or two. Chief Economic Adviser V Anantha Nageswaran said as much.

Nageswaran had said, "If we continue to retain the path of 8 per cent of real GDP growth, it will translate into even 8 per cent dollar GDP growth. If we extrapolate it, we should be a $5-trillion economy in terms of nominal GDP in the financial year 2025-26 or the financial year 2026-27."

International Monetary Fund
International Monetary FundCredit: Reuters

Lower growth rate for India: IMF

It should be noted that the IMF decreased India's growth prediction for FY23 by 80 basis points to 8.2% in its latest World Economic Outlook report released last month. This compared to the Reserve Bank of India's prediction of 7.2 percent growth for FY23.

The IMF also lowered India's FY24 real GDP growth prediction by 20 basis points to 6.9%. India's downgrading, according to the fund, reflects a combination of reduced net exports and weaker domestic demand (since rising oil costs are likely to weigh on private consumption and investment).