India's Projected GDP Decline of 10.3% This Fiscal is Worst Among All Emerging Economies: IMF

The International Monetary Fund (IMF) has pegged India's GDP contraction for the current fiscal year (April 2020-March 2021) at 10.3 per cent, biggest decline among all emerging and developing economies and third highest across the world, with only Spain and Italy contracting at a higher rate.

This sharp decline is a result Covid-19 led lockdowns in the country, one of the longest and harshest across the world.

The IMF's projection for India GDP contraction is 80 basis points (bps) higher than the Reserve Bank of India's (RBI's) estimate of 9.5 per cent decline in the country's GDP for FY2021. Central bank's governor Shaktikanta Das had announced the country's GDP outlook last week during the monitory policy committee's (MPC's) policy decision announcement.

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The Washington-based global fund has slashed the country's GDP growth by 5.8 percentage points from its June prediction of 4.5 per cent decline.

But, at the same time, the IMF has also projected a sharp recovery of 8.8 per cent growth in 2021 for India's GDP, which also is the highest across major economies.

"Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter. As a result, the economy is projected to contract by 10.3 percent in 2020, before rebounding by 8.8 percent in 2021," said IMF in its World Economic Outlook, October 2020 report.

The World Bank earlier this month estimated India's GDP to plunge by 9.6 per cent in this fiscal, revised down from 6.4 per cent contraction projected in June.

It should be noted that the IMF's outlook of 10.3 per cent GDP contraction for India is for the current fiscal year, ending on March 2021, as opposed to projections for all other economies based on the calendar year 2020. So, for fair comparison sake, IMF's outlook for India for the calendar year 2020 is pegged at 8.6 per cent, though still among the worst in emerging economies.

Global Deep Recession

The IMF has projected the world economy to contract by 4.4 per cent this year, though revised upwards from its June projection of 5.2 per cent decline, reeling under a deep global recession.

In 2021, the growth is expected to rebound to 5.2 per cent, slightly below the IMF's June projection.

Gita Gopinath, the Chief Economist of the IMF said that even though the world is coming back from the depths of its collapse in the peak of this crisis as a result of eased lockdown and rapid deployment of both monetary and fiscal policy support, the global economic crisis is far from over.

"Employment has partially rebounded after having plummeted during the peak of the crisis. This crisis is, however, far from over. Employment remains well below pre-pandemic levels and the labour market has become more polarised with low-income workers, youth and women being harder hit."

Countries that rely heavily on contact-intensive services and oil exports are expected to face weaker recoveries compared to manufacturing led economies, Gopinath added. "The divergence in income prospects between advanced economies and emerging and developing economies, excluding China, triggered by this pandemic is projected to worsen."

Further, the poor are getting poorer with close to 90 million people expected to fall into extreme deprivation this year, she added.

Even as the global fiscal support of about USD 12 trillion along with the rate cuts, liquidity injections and asset purchases by central banks have helped save livelihoods and prevented a financial catastrophe, a lot more needs to be done to ensure a sustained recovery, said Gopinath.

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