India’s High Fiscal Deficit Cause of Concern: Gita Gopinath at WEF

Addressing the World Economic Forum (WEF) in Davos, International Monetary Fund’s (IMF) Chief Economist Gita Gopinath said the IMF cut its estimate for global growth this year to 3.5 percent, from the 3.7 percent it had predicted in October and down from 2018’s 3.7 percent.

“Financial markets in advanced economies appear to be decoupled from trade tensions for much of 2018, but the two have become intertwined, more recently, tightening financial conditions and escalating the risks to global growth,” Gopinath added.

Speaking to reporters on the sidelines of the event, Gopinath also talked about the Indian economy, implementation of the Goods and Service Tax and farmers’ distress.

She flagged risks associated with India’s “high” fiscal deficit, but refused to comment on government policies, reported BloombergQuint.

Gopinath on GST and Farm Loan Waivers

Speaking to NDTV about the implementation of the GST in India, Gopinath pointed out the implementation worries.

“The indirect tax revenues which have come in are weaker than were expected, which is partly a reflection of how it was rolled out and the implementation issues with that and that would continue to have to be fixed.”

Gita Gopinath, Chief Economist, IMF

Emphasising on the agriculture sector, Gopinath said it “is another area we will need to do a lot better on.” Speaking about farm loan waivers, Gopinath added, “it should not take the form of loan waivers but in the form of cash support but not necessarily in the form of input subsidies.”

The statement comes at a time when there are reports suggesting that the prime minister is planning cash handouts to farmers.

However, despite the global risks, Gopinath pointed out that the state of India’s economy was positive.

IMF Chief on Economic Slowdown

The International Monetary Fund cut its growth forecast for 2019. And China, the world's second-biggest economy, said it had slowed to its weakest pace since 1990.

“After two years of solid expansion, the world economy is growing more slowly than expected and risks are rising,” said IMF Managing Director Christine Lagarde as she presented the forecasts.

The IMF is not alone in its pessimism. The World Bank, the Organisation for Economic Cooperation and Development and other forecasters have also downgraded their world growth estimates.

Among the key concerns is the Chinese economy. The country is slowing just as its leadership tries to turn it into a more modern economy by reducing its reliance on manufacturing and exports and increasing consumer spending.

The country reported on Monday growth of 6.6 percent in 2018, the weakest since 1990. Demand for Chinese exports weakened last year and the IMF expects China's growth to decelerate again this year – to 6.2 percent.

The IMF left its prediction for US growth this year unchanged at 2.5 percent – though a continuation of the partial 31-day shutdown of the federal government poses a risk.

The IMF trimmed the outlook for the 19 countries that use the euro as their currency to 1.6 percent from 1.8 percent. Germany got a big downgrade from the IMF, the result of weaker demand for German exports and problems in the country's auto industry.

Britain’s messy divorce from the European Union and Italy’s ongoing financial struggles also pose threats to growth in Europe.

Emerging-market countries are forecast to slow to 4.5 percent from 4.6 percent in 2018. That is partly a result of China's deceleration, which pinches developing countries that supply it with raw materials such as copper and iron ore.

(With inputs from BloombergQuint, NDTV and AP)