Economy

Pandemic-related uncertainties contributing to risks on economic outlook: IMF report

Our Bureau New Delhi | Updated on October 15, 2021

However, Executive Board reaffirms projection that India will be the fastest growing economy in FY22 and beyond

 

The International Monetary Fund on Friday said that the economic outlook for India remains clouded due to pandemic-related uncertainties. It has called for steadfast implementation of structural reforms.

This is part of the staff report prepared on the basis of bilateral discussion every year. The report is presented before the Executive Board of the Fund which gives its assessment and recommendations.

Advantage India

“A persistent negative impact of Covid-19 on investment, human capital, and other growth drivers could prolong the recovery and impact medium-term growth. While India benefits from favourable demographics, disruption to access to education and training due to the pandemic could weigh on improvements in human capital,” the report said.

The report has been released three days after the Fund released annual flagship publication, ‘World Economic Outlook’ where it retained India’s GDP growth for current fiscal (2021-22) at 9.5 per cent and for next fiscal (2022-23) at 8.5 per cent.

The report said that the recovery could also be faster than expected. “Faster vaccination and better therapeutics could help contain the spread and limit the impact of the pandemic. In addition, successful implementation of the announced structural reforms could increase India’s growth potential,” it said while noted that the authorities’ economic response, which was swift and substantial, has included fiscal support, including scaled-up support to vulnerable groups, monetary policy easing, liquidity provision, and accommodative financial sector and regulatory policies.

 

However, the report noted that despite policy support, bank credit growth has remained subdued, while large corporates have benefited from easier conditions in capital markets. Net inflows and improvement in the current account have supported an increase in foreign exchange reserves. “The current account balance is projected to return to a deficit of about 1 per cent of GDP in FY2021/22, due to a gradual recovery in domestic demand and higher oil prices,” it said.

Making its assessment based on the report, the Executive Board reaffirmed that India is projected to be one of the fastest growing economies for this year and beyond. It agreed that maintaining accommodative monetary policy remains appropriate, although elevated inflation pressures need to be closely monitored. “Looking ahead, a well-communicated plan for a gradual reduction in monetary policy support as the recovery strengthens would foster orderly market transitions,” it said.

Directors in the board commended the authorities for advancing structural reforms despite the pandemic and stressed the need for their steadfast implementation. “Long-standing reform priorities include ongoing labour and land reforms, infrastructure investment, improvements in governance, continued trade and investment liberalisation, and improving education outcomes. Such reforms would not only help maximize India’s long-term growth and demographic dividend, but also help alleviate poverty and inequality, and deepen the country’s integration into global value chains. India’s progress toward transitioning to a greener and more inclusive economy is welcome,” the board said.

Published on October 15, 2021

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