IMF projects economy to contract by 4.5% in FY21

The International Monetary Fund (IMF) has warned that the Indian economy faces an even deeper downturn than what it had projected in April as the country grapples with the Covid-19 pandemic. It has projected a sharp contraction of 4.5 per cent in FY21, a steep drop from its April forecast of a 1.9 per cent expansion, calling it a "historic low" for India.

In fact, India faced the sharpest cut in the outlook — a 6.4-percentage point revision due to a more severe fallout of the pandemic than anticipated. In comparison, emerging markets (EMS) and developing countries saw a 2-percentage point reduction in outlook, while the global outlook was cut by 1.9 percentage points.

The silver lining, however, is that the country is expected to bounce back in FY22 with a 6 per cent growth rate, the IMF said in its latest World Economic Outlook titled A Crisis like No Other, An Uncertain Outlook. However, it is lower than even the ASEAN-5 average of 6.2 per cent estimated for 2021 by the agency.

China is estimated to post 1 per cent growth in 2020 and revive to 8.2 per cent in 2021, retaining the fastest-growing economy tag for the third straight year.

“We are projecting a sharp contraction of 4.5 per cent. Given the unprecedented nature of this crisis, as is the case for almost all countries, this projected contraction is a historic low,” IMF Chief Economist Gita Gopinath said after releasing the WEO update. According to the IMF ’s record, this is the lowest ever for India since 1961.

However, according to the back-series data released by the Ministry of Statistics and Programme Implementation (MOSPI), taking 2011-12 as base, the economy shrunk by 5.2 per cent in 1979-80.

The Indian economy grew by 4.2 per cent in 2019-20. The global output is seen shrinking 4.9 per cent, and EMS by 3 per cent. “For the first time, all regions are projected to experience negative growth in 2020,” said the IMF.

“The Covid-19 pandemic pushed economies into a Great Lockdown, which helped contain the virus and save lives, but also triggered the worst recession since the Great Depression,” Gopinath said.

With the updated forecast, the IMF joins other international agencies in projecting negative growth for India in the current fiscal. Last week, the Asian Development Bank also scaled down India’s growth forecast to -4 per cent from a 4 per cent expansion. The IMF’S WEO said that in 2021, global economy was projected to grow at 5.4 per cent. “The pandemic has had a more negative impact on activity in the first half of 2020, with recovery projected to be more gradual than expected,” said the IMF. It further pointed out that economies struggling to control infection rates would see lengthier lockdowns, inflicting additional toll on economic activity.