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Business News/ News / India/  Amid covid risk, IMF raises India outlook
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Amid covid risk, IMF raises India outlook

IMF revises India’s FY22 GDP growth forecast to 12.5%
  • IMF chief economist Gita Gopinath said the upgrade in forecast came in the background of encouraging signs from high-frequency indicators
  • IMF chief economist Gita Gopinath said a high degree of uncertainty surrounds the projections. (AP Photo/Andrew Harnik) (AP)Premium
    IMF chief economist Gita Gopinath said a high degree of uncertainty surrounds the projections. (AP Photo/Andrew Harnik) (AP)

    The International Monetary Fund (IMF) on Tuesday upgraded its FY22 growth projection for India to 12.5% from 11.5% estimated in January but cautioned that the forecast hasn’t factored in the severe downside risks arising from the country’s ongoing second wave of covid-19.

    Briefing reporters while releasing IMF’s biannual World Economic Outlook, chief economist Gita Gopinath said the one percentage point increase in India’s growth forecast for FY22 came in the background of encouraging signs from high-frequency indicators.

    “This came with the evidence we were getting in the last couple of months in terms of normalization of economic activity. These numbers precede the current wave of the virus, which is quite concerning. So, it comes before that," she added.

    India registered more than 100,000 coronavirus cases on Sunday, crossing the peak of the first wave of the pandemic, with almost 50% of the cases being reported from Maharashtra. The state imposed a partial lockdown on Sunday, closing down malls, theatres, hotels, restaurants and imposing a statewide night curfew to curb the transmission of the virus. On Tuesday, Delhi also declared a night curfew, as new mobility curbs crop up across the country.

    Malhar Nabar, head of the World Economic Studies division at the IMF, said the second wave poses severe downside risk to the growth outlook.

    “In the current forecast, we have already taken a fairly conservative view on the sequential growth of the Indian economy for this year. But it’s true that this very worrying uptick in cases pose very severe downside risk to the growth outlook for the economy," he added.

    Gopinath said faster progress with vaccinations can raise the growth forecast of both developed and developing countries, while a more prolonged pandemic with virus variants that evade vaccines can lead to a sharp downgrade.

    “Multi-speed recoveries could pose financial risks if interest rates in the US rise further in unexpected ways. This could cause inflated asset valuations to unwind in a disorderly manner, financial conditions to tighten sharply, and recovery prospects to deteriorate, especially for some highly leveraged emerging markets and developing economies," she added.

    The report said in emerging market and developing economies, vaccine procurement data suggest that effective protection will remain unavailable for most of the population in 2021.

    “Lockdowns and containment measures may be needed more frequently in 2021 and 2022 than in advanced economies, increasing the likelihood of medium-term scarring effects on the potential output of these countries," it added.

    Gopinath said divergent recovery paths are likely to create wider gaps in living standards across countries compared to pre-pandemic expectations.

    The average annual loss in per capita GDP over 2020-24, relative to pre-pandemic forecasts, is projected to be 5.7% in low-income countries and 4.7% in emerging markets, while in advanced economies, the losses are expected to be less at 2.3%.

    Such losses are reversing gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020 compared with pre-pandemic projections.

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    Updated: 07 Apr 2021, 06:11 AM IST
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