Current Affairs 2022: Highlights of IMF Report 2021 on India

By Shweta

Recently International Monetary Fund (IMF) released its report on India. Read here the highlights of the IMF report on India.

 After two massive waves of COVID-19, one might wonder how much damage the country has sustained because of the pandemic and how getting back on foot is going to be a task. The second Covid wave wreaked havoc on India’s economy earlier this year, resulting in stringent local restrictions across the country. While there was no nationwide lockdown during the second wave but local lockdowns were just as intense.

At one point, almost the entire country was placed on lockdown, and businesses from all across the country suffered. Small businesses and the informal sectors were mainly hard impacted during the second wave, and millions of people lost their jobs.

The health and economic crisis which had been faced was no surprise for the Indian economy. During the first wave, the economy shrank by an extraordinary 7.3 per cent in the fiscal year 2020/21. The second wave saw a dramatic drop in economic activity; however, it was smaller and shorter this time, and current high-frequency signs point to a continued recovery. Fiscal support, including scaled-up help to disadvantaged groups, monetary policy easing, liquidity provision, and supportive banking sector and regulatory policies, were all part of the government’s fast and considerable economic reaction. Despite the pandemic, the government has continued to implement fundamental reforms, such as labour reforms and a privatization strategy.

What did the IMF think about us?

The directors complimented the government’s reaction to the epidemic, which included enhanced support for the most vulnerable, monetary policy easing and liquidity provision, accommodative banking sector and regulatory measures, and long-term structural reforms.

• They recommended the government to keep increasing immunization rates, maintain policy accommodation until the recovery is well established, and speed up structural adjustments to foster more inclusive and sustainable growth while limiting public debt concerns.
• The health problem was still a near-term policy priority, according to them.
• They praised the recent uptick in immunizations in this area. They also lauded India’s contributions to the global fight against the pandemic as a vaccine producer.
• They complimented the government for continuing to put in place structural improvements despite the outbreak, emphasizing the need of continuing to do so.
• Long-term reform initiatives include ongoing labour and land reforms, infrastructure investment, governance improvements, expanded trade and investment liberalization, and enhanced educational performance.

Such reforms will not only contribute to India’s long-term growth and demographic dividend but also the reduction of poverty and inequality, as well as the country’s integration into global value chains. India’s journey toward a greener, more inclusive economy is also to be applauded.
India’s GDP Overview (2019 vs 2020)

In 2018/19, the Real GDP (at market price) was 6.5, 4 in 2019/20, -7.3 in 2020/21, and what about 2021/22?

Here is what the IMF projected about India’s GDP growth for the year 2021/22, India’s economy is said to grow by 9.5% in 2021 and 8.5% in the year 2022.

According to the International Monetary Fund, the US economy would increase by 6.0 per cent in 2021 and 5.2 per cent in 2022.

China’s economic growth is expected to be 8.0 per cent in 2021 and 5.6 per cent in 2022, according to the report.

Why were the growth projections downgraded by the IMF?

The pandemic has pushed India’s GDP back roughly 10.9 per cent over the next two years, according to IMF predictions. Following India’s deadly second COVID-19 pandemic, the

International Monetary Fund (IMF) lowered India’s GDP forecast for fiscal 2021-22 from 12.5 per cent to 9.5 per cent, a three-point fall.

India saw the biggest fall in growth expectations for the 2018 fiscal year, according to the IMF’s current World Economic Outlook, despite the global economic growth rate being unchanged at 6%. (WEO).

“Growth prospects in India have been downgraded following the severe second COVID wave during March-May and expected slow recovery in confidence from that setback,” IMF said.
IMF Chief Economist Gita Gopinath said, “Faster-than-expected vaccination rates and return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of COVID-19 cases in some countries, notably India, have led to downgrades.”

In the fiscal year 2020-21, India recorded its worst-ever performance in over four decades, with a de-growth rate of 7.3 per cent, despite a minor uptick of 1.6 per cent in the prior January-March quarter.

The Light ahead of the Tunnel

Despite policy support, the COVID-19 shock has caused a deep and broad-based economic downturn, followed by a gradual recovery. The prolonged pandemic is contributing to lower medium-term growth. While policy measures have softened the impact on corporates but the pandemic has hit transport, services, and MSMEs badly.

Looking ahead, addressing long-standing reform priorities and improving education outcomes could minimize any adverse medium-term impact and further boost long-term growth. If the Indian economy grows at the expected rate, it will reclaim the title of the fastest-growing emerging economy, surpassing China’s 8.2% projected growth rate.

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