NOT OUT OF THE WOODS YET: GOPINATH
IMF SAYS INDIA’S ECONOMY TO CONTRACT BY 4.5% AMID PANDEMIC
NEW DELHI: The Indian economy will contract 4.5% in the current fiscal, the International Monetary Fund (IMF) said on Wednesday, reversing its rather optimistic 1.9% April growth forecast, as the lockdown-related disruptions to domestic activity turned out to be more severe than it had expected. For the next fiscal, IMF tempered its growth forecast to 6% from the 7.4% it estimated in April, according to its World Economic Outlook (WEO) update.
Since the IMF released its previous update in April, the pandemic swept across countries, including India, necessitating stringent lockdown measures for a longer period. This resulted in severe disruptions to economic activity and massive job losses. India has now lifted nearly all curbs on travel and businesses to the economy. “We are definitely not out of the woods. We have not escaped the Great Lockdown,” IMF chief economist Gita Gopinath said. “Given this tremendous uncertainty, policymakers should remain vigilant.”
Most forecasting agencies now expect the Indian economy to contract 3-5% in the current year with varied projections of a rebound in FY22. India Ratings on Wednesday projected the economy to contract by 5.3% in FY21 and predicted a revival in the range of 5-6% in FY22, aided by a lower base in the preceding year and a return of gradual normalcy in the domestic as well as the global economy.
While noting India has unveiled liquidity support (4.5% of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector, IMF said countries where fiscal space is limited need to reorient revenue and spending to increase and encourage productive investment. “All measures should be embedded in a medium-term fiscal framework and transparently managed and recorded to mitigate fiscal risks, including loans and guarantees that do not have an immediate effect on government debt and deficits,” IMF said.
For the next fiscal, IMF tempered its growth forecast to 6% from the 7.4%.