IMF pegs contraction of India’s GDP this year at 4.5%

India’s economy is going hell for leather with the IMF projecting FY21 GDP growth to contract by 4.5%.
IMF. (File | Reuters)
IMF. (File | Reuters)

HYDERABAD: India’s economy is going hell for leather with the IMF projecting FY21 GDP growth to contract by 4.5%. Such a sharp revision from its April estimate of 1.9% growth offers a withering assessment of the economic slowdown prolonged by the pandemic-induced lockdown and slower recovery.
But IMF’s latest World Economic Report estimates, in its own words, are inscrutable due to a higher-than-usual degree of uncertainty, which is to say that the actual growth decline could be fiercer than all forecasts.

Global growth too is projected to shrink 4.9% in 2020 as against its previous estimate of 3%. But the startling news is not so much about the extraordinary collapse in growth, but its recovery, the direction of which the multilateral agency has no hold on. If forced lockdowns choked economies’ lungs, an uncertain recovery has left countries to gasp for breath, literally landing them at the death’s door.

Two things await us -- a faster recovery and a potential second wave of infections. The world’s fortunes and individuals’ fate depends on which one reaches us first and survives longer than the other. Until three months ago, India was one of the only two emerging economies with a potential to turn in positive growth. Now, that job is left to one country, which unsurprisingly, is China. Having reopened its economy in April, it’s expected to punch in positive growth of 1% this fiscal and 8.2% next. In 2020, barring China, all other countries, for the first time, will witness negative growth, as per IMF.  

India will bounce back in the range of 5-6% in FY22

The International Monetary Fund (IMF) has projected that India will recover to 5-6 per cent in FY22, well below its potential, while global growth will touch 5.4 per cent, barely exceeding the 2019 level. Overall, this would leave 2021 GDP some 6.5 per cent lower than in the pre-Covid-19 projections of January 2020. Meanwhile, IMF estimates countries have committed $10 trillion (excluding monetary measures) and so global public debt is expected to reach an alltime high, exceeding 101 per cent of GDP in 2020-2021.

As for income inequality, IMF projections imply a particularly acute negative impact on economies. The fraction of the world’s population living in extreme poverty — on less than`144 a day — fell below `10 in recent years from over 35 per cent in 1990. Now, this is at risk as most emerging and developing economies are likely to witness negative per capita income growth in 2020.

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