IMF forecasts steep cut in India's GDP growth

The International Monetary Fund Tuesday steeply cut India’s economic growth forecast to 1.9% for 2020-21 from 5.8% projected in January and warned that the lockdown to combat Covid-19 would cause a dramatic drop in economic activity across the globe, far more painful than the Great Depression of the 1930s.

It, however, estimated a sharp economic recovery for India in the financial year 2021-22 at 7.4%.

China, where the virus outbreak originated, is slated to grow at 1.2% in 2020, down from 6% in the IMF’s forecast in January.

The global economy, however, is expected to shrink by 3%, the IMF said in its World Economic Outlook for 2020.

“The magnitude and speed of collapse in the activity that has followed is unlike anything experienced in our lifetimes. April World Economic Outlook projects global growth in 2020 to fall to -3%.

This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods.”

“In addition, many countries now face multiple crises—a health crisis, a financial crisis, and a collapse in commodity prices, which interact in complex ways. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown,” said IMF Chief Economist Gita Gopinath in her statement.

IMF was still kinder to India than Investment bank Barclays, which slashed India’s growth forecast to 0% for the calendar year 2020 from its earlier projection of 2.5% soon after Prime Minister Narendra Modi extended the nationwide lockdown till May 3.

It estimated India’s economic loss to be close to 8.1% of its GDP this year, assuming the lockdown would continue to be in force till May end.

Earlier Goldman Sachs had projected such a deep cut for India’s GDP growth in 2020-21. All other rating agencies, brokerages and global financial institutions have put are in the range of 4% and 2%.

Gopinath said countries should continue to spend generously on their health systems, perform widespread testing, and refrain from trade restrictions on medical supplies

“While the economy is shut down, policymakers will need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic pass,” she said.

She appreciated large, timely, and targeted, fiscal, monetary, and financial policies already taken by many policymakers—including credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits, and tax relief— that have been lifelines to households and businesses.

“This support should continue throughout the containment phase to minimize persistent scars that could emerge from subdued investment and job losses in this severe downturn,” Gopinath said amid a widespread demand in India for a more robust economic package than the one provided by the government.

Meanwhile, PTI reports that the International Monetary Fund on Monday announced immediate debt relief for 25 poor countries to help them free up funds to fight the coronavirus pandemic.

“This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts,” IMF Managing Director Kristalina Georgieva said in a statement.