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IMF expects India's GDP to contract 4.5% in FY21, slashes FY22 growth forecast to 6%

India's economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April, IMF said

twitter-logoBusinessToday.In | June 24, 2020 | Updated 19:59 IST
IMF expects India's GDP to contract 4.5% in FY21, slashes FY22 growth forecast to 6%

International Monetary Fund (IMF) has predicted that Indian economy will contract 4.5 per cent during financial year 2020-21 on the back of extended coronavirus lockdown. This happens to be IMF's worst growth projection for India since 1961. Its earlier projection showed India's GDP growing at a 1.9 per cent. For FY22, the international organisation slashed India's growth forecast to 6 per cent from 7.4 per cent stated earlier.

"India's economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April," IMF said in its World Economic Outlook Update for June 2020 on Wednesday.

IMF projected that global GDP will contract 4.9 per cent in 2020, bottoming out in second quarter of the year. In 2021, global growth is projected to 5.4 per cent, 0.4 percentage point lower than IMF's April forecast of 5.8 per cent.

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"The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s," IMF said.

This will be the first time ever that all regions are projected to experience negative growth in 2020, IMF said in its statement. The organisation urged countries, even those where coronavirus cases have peaked, to ensure that their healthcare systems are adequately resourced. To the international community, IMF suggested supporting national initiatives, through financial assistance to countries with limited health care capacity and channeling of funding for vaccine production as trials advance, so that adequate, affordable doses are quickly available to all countries.

ALSO READ: Coronavirus effect: India's GDP may contract by 3.1% in 2020, says Moody's

"Where lockdowns are required, economic policy should continue to cushion household income losses with sizable, well-targeted measures as well as provide support to firms suffering the consequences of mandated restrictions on activity. Where economies are reopening, targeted support should be gradually unwound as the recovery gets underway, and policies should provide stimulus to lift demand and ease and incentivize the reallocation of resources away from sectors likely to emerge persistently smaller after the pandemic," the international organisation said.

"Strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net. Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 crisis," it further added.

ALSO READ: Fitch Ratings revises India's outlook to negative from stable; retains sovereign rating 'BBB-'

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