Heed the warning of the IMF report

There are some unpleasant takeaways for India in the World Economic Outlook published by the International Monetary Fund (IMF) which has made estimates and projections of economic growth for 2020 and for the period up to 2025. The estimates are for the world and for individual countries, and India comes away with a lot of damage to its economy in absolute and in relative terms.

The report has noted that poverty is set to increase, reversing the gains made in the last two decades, and income inequalities will increase further. Younger workers and women will be more adversely affected than others. Human capital accumulation, including schooling and learning, will also suffer serious setbacks. Vulnerabilities that existed in social, economic and other areas will become sharper and deeper across the world.

The report projects a difficult economic scenario for India for this year and the coming years. While global growth is projected to contract by 4.4%, the Indian economy is set to contract by 10.2%. The IMF doubled the rate of India’s GDP contraction since its last update in June, but the estimate for the world has improved. Most of the economies with which India’s economy is often compared, like those of China, the US, and even Brazil and Pakistan are likely to be less affected.

The IMF also thinks India will be the worst affected not only in the short term but also in the medium term. It will also take longer than other countries to recover. These are based on the present situation and trends, but it should be noted that the Indian economy had begun to slide much before Covid-19 struck, thanks to the repeated shocks administered to the economy in the form of demonetisation, a badly designed and implemented GST, and arbitrary rule-making that created policy uncertainty for key sectors such as automotive. The long and harsh, and arguably premature, lockdown further aggravated it.

One estimate that has drawn much attention is that India will be poorer than Bangladesh by 2025 in per capita terms. Last year, India’s GDP grew at 4.2%, itself an 11-year low, while Bangladesh grew at 8.2%. This year, while India is likely to decline in double digits, Bangladesh is set to grow at 3.8%. It will sustain the lead even after India starts recovering. Its per capita GDP will be higher than India’s this year and in the coming years.

It will be at $2,756.11 while India will be at $2,729.24 in 2025. If the present trends do not change, India will be the third poorest country in South Asia, after Pakistan and Nepal. The government will do well to heed the analysis and warnings in the report.