Indian economy will contract 10.3 per cent in the financial year 2020-21 as the country gradually climbs out of the coronavirus-induced lockdown, said the International Monetary Fund in its Wold Economic Outlook report released on Tuesday. This projection is substantially lower than the 4.5 per cent de-growth predicted by the internatonal financial instutution back in June, indicating challenges to economic growth as the pandemic continues to spread and claim lives.
IMF, however, projected that the Indian economy will deliver an impressive recovery in the next fiscal with 8.8 per cent growth, higher than the 6 per cent growth rate it had predicted in its World Economic Outlook for June.
"Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter," IMF said.
In its report titled 'A Long and Difficult Ascent', the IMF predicted that all economies - emerging and advanced - will witness contraction during this year, with China being the only exception. Global economy is expected to contract 4.4 per cent during 2020, IMF said after an upward revision of 0.8 per cent. In 2021, world output will grow 5.2 per cent, it further added.
"The revision reflects better-than-anticipated second quarter GDP outturns, mostly in advanced economies, where activity began to improve sooner than expected after lockdowns were scaled back in May and June, as well as indicators of a stronger recovery in the third quarter. Global growth is projected at 5.2 per cent in 2021, a little lower than in the June 2020 WEO Update, reflecting the more moderate downturn projected for 2020 and consistent with expectations of persistent social distancing," IMF said.
IMF said the growth bounce-back of 5.2 per cent in global ouput projected for 2021 is accordingly stronger from a lower base. Asian advanced economies are projected to have somewhat more moderate downturns than those of Europe, in light of the more contained pandemic, also reflected in smaller GDP declines during the first half of 2020, it further said.
It said that prospects continue to remain precarious for emerging and developed economies, reflecting a combination of factors: the continuing spread of the pandemic and overwhelmed health care systems; the greater importance of severely affected sectors, such as tourism; and the greater dependence on external finance, including remittances.
IMF further warned that unemployment rates in several emerging economies will increase significantly this year, owing to the wide negative output gaps in 2020 and 2021. "Including those in reduced-hours work programs and those counted in involuntary part-time employment, the share of workers underemployed in some advanced economies is significantly higher than the fraction of headline unemployed," the institution said in its latest WEO report.
Reagrding poverty, IMF stated that COVID-19 will reverse the progress made towards poverty alleviation since 1990s, with close to 90 million people falling below the $1.90 a day income threshold of extreme deprivation this year. "People who rely on daily wage labor and are outside the formal safety net faced sudden income losses when mobility restrictions were imposed. Among them, migrant workers who live far from home had even less recourse to traditional support networks," it said.
In medium-term, projections would reflect impact of COVID-19 on supply potential, with growth in global economy slowing down to 3.5 per cent, IMF said. "This implies that both advanced and emerging market and developing economies will only modestly progress toward the 2020-25 path of economic activity projected before the COVID-19 pandemic, pointing to a severe setback to the projected pace of improvement in average living standards across all country groups," it further said.
"Preventing further setbacks will require that policy support is not prematurely withdrawn. The path ahead will require skillful domestic policies that manage trade-offs between lifting near-term activity and addressing medium-term challenges," said IMF's Chief Economist Gita Gopinath in the foreword to the latest WEO report.
"Near-term support policies should be designed with a view toward placing economies on paths of stronger, equitable, and sustainable growth... policymakers can simultaneously aim to mitigate climate change and bolster the recovery from the COVID-19 crisis," she further added.