IMF cuts India GDP forecast for FY21, says it will contract by 4.5 per cent

The International Monetary Fund (IMF) steeply slashed India’s growth outlook for the current fiscal year to a minus 4.5 per cent from 1.9 expansion estimated in April owing to an extended Covid-19 lockdown and slower economic revival. This will be the lowest in several decades.

In fact, India faced the sharpest cut in the outlook, a 6.4 percentage point revision due a more severe fallout of the pandemic than earlier anticipated. In comparison, emerging markets and developing countries group saw a 2 percentage reduction in outlook while the world outlook was only cut by 1.9 percentage points.

“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,” the IMF said in its latest World Economic Outlook, titled ‘A Crises like No Other, An Uncertain Outlook’. India’s growth is expected to revive to 6 per cent in 2021-22, as per IMF.

With downturn deeper than previously projected, the global output will shrink by 4.9 per cent and emerging markets by 3 per cent this year.

“For the first time, all regions are projected to experience negative growth in 2020,” said the IMF.

Incidentally, China is estimated to post a 1 per cent growth in 2020, and revive to 8.2 per cent in 2021.

With the updated forecast IMF joins other international agencies in projecting a negative growth for India for the current fiscal. Last week, the Asian Development Bank had also scaled down India’s growth forecast to (-) 4% from a 4 per cent expansion as measures to contain the spread of Covid-19 significantly disrupted activities.

As per the IMF WEO, in 2021 global growth is projected at 5.4 per cent, which will be about 6.5 percentage points lower than the pre-Covid projections of January 2020.

“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said in the report.

It further pointed out that the economies struggling to control infection rates will see lengthier lockdowns inflicting an additional toll on economic activity.

With over 4.5 lakh cases till date, India is ranked 4th globally in the list of countries worst affected by Covid-19.

It however cautioned that similar to the April 2020 WEO projections, there was pervasive uncertainty around this forecast. “The forecast depends on the depth of the contraction in the second quarter of 2020 (for which complete data are not yet available) as well as the magnitude and persistence of the adverse shock.

As the Great Lockdown begins to ease, the IMF said that fiscal policies will have to balance the need to protect people, stabilize demand, and facilitate recovery. It emphasized on public investment to accelerate recovery and expanded social safety net spending to protect the most vulnerable.

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

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