The IMF has lowered India's GDP growth projection for the year 2019 to 6.1%, which is 1.2% down from its April projections.
The International Monetary Fund (IMF) in April said India will grow at 7.3% in 2019. However, three months later it projected a slower growth rate for India in 2019, a downward revision of 0.3%.
As against India's real growth rate of 6.8% in 2018, the IMF in its latest World Economic Outlook projected India's growth rate at 6.1% in 2019 and noted that the Indian economy is expected to pick up the next year at 7.0% in 2020.
The downward revision relative to the April 2019 WEO of 1.2 percentage points for 2019 and 0.5 percentage point for 2020 reflects a weaker-than-expected outlook for domestic demand, the IMF said.
"Growth will be supported by the lagged effects of monetary policy easing, a reduction in corporate income tax rates, recent measures to address corporate and environmental regulatory uncertainty, and government programs to support rural consumption, the IMF said.
China, whose GDP grew at 6.6% in 2018, is now projected to grow at 6.1% in 2019 and 5.8% in 2020, it said.
"India's economy decelerated further in the second quarter, held back by sector-specific weaknesses in the automobile sector and real estate as well as lingering uncertainty about the health of nonbank financial companies," said the World Economic Outlook released ahead of the annual meeting of the IMF and the World Bank.
In India, growth softened in 2019 as corporate and environmental regulatory uncertainty, together with concerns about the health of the nonbank financial sector, weighed on demand, it said.
In its report, the IMF said that in India, monetary policy and broad-based structural reforms should be used 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 rationalisation and tax-base enhancing measures. Governance of public sector banks and the efficiency of their credit allocation needs strengthening, and the public sector's role in the financial system needs to be reduced, it said.
Reforms to hiring and dismissal regulations would help incentivize job creation and absorb the country's large demographic dividend. Land reforms should also be enhanced to encourage and expedite infrastructure development, the IMF said.