IMF pegs India growth at 9.5%, urges lower debt-to-GDP ratio

Shot in the arm: India is doing well in terms of vaccination, says IMF Chief Economist Gita Gopinath. SUSHIL KUMAR VERMA  

The IMF has projected that India will grow at 9.5% and 8.5% this fiscal year and next after a contraction of 7.3% last year. It has projected global growth at 5.9% this year and 4.9% in 2022 in its latest World Economic Outlook, unveiled at the start of the World Bank IMF Annual Meetings.

While the numbers for India remain unchanged from the IMF’s July forecast — which had already incorporated a sizeable downgrade of 3 percentage points from the preceding April forecast — there has been a marginal downward revision for world output growth in 2021 from the July forecast (6%).

“India is doing well in terms of vaccination rates and that’s certainly helpful,” IMF Chief Economist Gita Gopinath said, adding that the July forecast had already incorporated the impacts of the devastating second wave. The Indian economy continued to face challenges, such as those from the financial market and from the virus not having disappeared yet, Ms. Gopinath said. Last week, in a report on South Asia, the World Bank had projected 8.3% growth for India this fiscal year.

In response to a question on whether the fiscal deficit in India was a concern, the lead author of the report, Mahlar Nabar, said there was potentially more room for support at the moment.

“We think that there’s still room to provide more support if needed, if the pandemic takes a turn for the worse and to provide it in a targeted manner to the worst-affected households and firms,” he said.

However, there would need to be “a credible medium-term strategy” to reduce the debt-to-GDP ratio to make room for future development and infrastructure needs.

“The global recovery continues, but the momentum has weakened hobbled by the pandemic, fueled by the highly transmissible Delta variant,” Ms. Gopinath said. Disruptions to supply chains have created longer-than-expected supply disruptions, which, in turn have fed inflation in many countries making policy trade-offs more complex, she said. Food insecurity has become “most acute” in low-income countries, adding to the burdens of the poor and increasing the risk of social unrest, Ms. Gopinath said.

The modest revision downwards masks variations between the countries, with low-income, developing countries being particularly hit by the pandemic. This, however, is partially offset by strong, short-term prospects among commodity-exporting, emerging markets and developing countries, the IMF said.

Global growth is expected to settle at 3.3% after 2022. Advanced economies are expected to exceed pre-pandemic medium-term projections, largely due to “sizeable” anticipated policy support from the U.S. (where a $1-trillion infrastructure bill and a larger social spending bill are currently being discussed by Congress). The U.S. is projected to grow at 6% and 5.2% this year and the next, and the Euro Area at 5% and 4.3% over the same periods.

However, for EMDEs, persistent output losses are expected due to generally lower levels of policy support and slower vaccine roll-out compared to advanced economies. For these countries — excluding China — aggregate output is expected to be 5.5% below pre-pandemic forecasts in 2024.

The top priority is to vaccinate at least 40% of the population of every country by the year-end and 70% by the middle of next year, Ms. Gopinath said, as she called on rich countries to fulfil their vaccine pledges and remove trade restrictions on the flow of vaccines and their inputs.

The IMF also called for stronger commitments at the forthcoming United Nations Climate Change Conference (COP26) in Glasgow and said advanced economies needed to deliver on their $100-billion-per-year international climate finance pledge to developing countries. Other recommendations included asking the Group of Twenty (G20) to speed up the restructuring of unsustainable debt of poorer countries.

Recently, India has been under some pressure from the U.S. and U.K. to raise its climate-related commitments from the Paris Agreement (2015), with British Prime Minister Boris Johnson speaking with Prime Minister Narendra Modi on Monday about the matter. External Affairs Minister S. Jaishankar had said earlier this month that developing countries needed space to grow and had urged rich countries to fulfill their climate finance pledges and adopt ‘net minus’ emissions policies.

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Printable version | Nov 29, 2021 9:23:40 AM |

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