IMF scales down growth projection, says Indian economy will contract by 4.5% this fiscal

The International Monetary Fund (IMF) has cut its projection for India as well as global growth. The agency estimates show that the Indian economy will contract this fiscal, but will bounce back smartly during the next fiscal.

“India’s economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April,” IMF said in the latest update of ‘World Economic Outlook.’ Interestingly, IMF was among two or three agencies, which had estimated growth in its April outlook. At that time, it was projected that India will grow by 1.9 per cent during current fiscal.

This projection has come at a time when India is yet to see a peak of the Covid-19 virus. Although, the recovery rate is above 50 per cent and also the death rate is low, still the average number of positive cases is now 15,000 or more.

More significantly, metros such as Delhi, Mumbai and Chennai are witnessing sharp surge in the cases affecting the path of normalcy during first phase of nationwide opening up. The governments — both Central and States — have said repeatedly that there will be no further lockdown. But economic activities are still facing uncertainties.

Like various agencies, IMF too expects better days ahead. It projects growth of 6 per cent during the next fiscal. However, it is 1.4 percentage points lower than the April outlook. Taking note of liquidity support under Atmanirbhar Bharat package, it feels that various sectors will gain from that.

“India has unveiled liquidity support (4.5 per cent of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector,” the report said.

Bleak global economy

Titled ‘A Crisis Like No Other, An Uncertain Recovery’, the update on World Economic Outlook projects global growth at (–) 4.9 per cent in 2020, which is 1.9 percentage points below the April forecast.

The pandemic has had a greater negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 per cent.

“Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-Covid-19 projections of January 2020,” the report mentioned.

According to the report, strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net.

Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the Covid-19 crisis.

Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes.

The global community must act now to avoid a repeat of this catastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to the neediest, it said.

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