Home / News / India /  IMF sees India’s GDP shrink 10.3%

The International Monetary Fund (IMF) on Tuesday forecast India’s gross domestic product (GDP) to contract 10.3% in FY21, in a downward revision of its June forecast of a 4.5% drop, reflecting the worse-than-anticipated contraction in economic activity in the fiscal first quarter due to the nationwide lockdown, as well as the rapidly-spreading pandemic.

In its biannual World Economic Outlook, IMF said all emerging market and developing economy regions are expected to shrink this year, including notably emerging Asia, where large economies such as India and Indonesia continue to try to bring the pandemic under control.

“Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second (June) quarter. As a result, the economy is projected to contract by 10.3% in 2020, before rebounding by 8.8% in 2021," it added.

IMF said the June quarter GDP was weaker than projected in India, where domestic demand plunged following a very sharp compression in consumption and a collapse in investment. India’s GDP shrank 23.9% in the June quarter, making it the worst performer among G20 economies. The Reserve Bank of India on Friday admitted, for the first time, that India’s economy will contract 9.5% in FY21, with a mild expansion in the March quarter.

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Sarvesh Kumar Sharma/Mint

The multilateral lending body, however, said global growth may see less severe contraction at -4.4% in 2020 than it envisaged in June (-5.2%), reflecting better-than anticipated June-quarter GDP growth in advanced economies, where activity began to improve sooner than expected, indicating a stronger recovery in the September quarter.

“The ascent out of this calamity is likely to be long, uneven and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best as possible," IMF chief economist Gita Gopinath said.

Without naming India, Gopinath said emerging market and developing economies are managing this crisis with fewer resources, as many are constrained by elevated debt and higher borrowing costs. “These economies will need to prioritize critical spending for health and transfers to the poor and ensure maximum efficiency. Where debt is unsustainable, it should be restructured sooner than later to free up finances to deal with this crisis," she added.

IMF warned covid will reverse the progress made since the 1990s in reducing global poverty and will increase inequality. “People who rely on daily wage labour and are outside the formal safety net faced sudden income losses when mobility curbs were imposed. Close to 90 million could fall below the $1.90 a day income threshold of extreme deprivation this year," it added.

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