In its latest report, World Economic Outlook, the International Monetary Fund (IMF) has projected India’s GDP to grow by 12.5% in 2021. This is higher compared to the previous forecast of 11.5%. Additionally, the monetary fund body has also estimated India’s economy to record a growth rate of 6.9% in 2022, a rate 10 basis points higher than its earlier projection.
The forecast additionally suggests that India would again become the fastest-growing economy in the world. In fact, the forecast went on to project that India will be the only country among major world economies that is projected to grow at a double-digit rate during FY22.
IMF’s Chief Economist and Director of the Research Department, Gita Gopinath, in the press briefing of the April 2021 World Economic Outlook talked positively about India’s 12.5% growth projection.
The International Monetary Fund has also additionally stated that it expects India’s average consumer price index (CPI) based inflation rate to come down to 4.9 per cent during the current financial year from 6.2 percent recorded in the previous year.
According to its assumptions it has also added that average inflation rate would further fall to 4.1 per cent in the financial year 2022. The report also adds that the current account balance could slip into a deficit of 1.2 per cent in FY22, against a surplus of one per cent the previous year.
The IMF’s projection for India in the current financial year is the upper end of a range that the World Bank’s forecast recently. Considering the uncertainty caused by Covid-19 cases, the World Bank gave a range for India’s economic growth, from 7.5 per cent to 12.5 per cent in FY22. However, it has also said India that was likely to grow by 10.1 per cent during the year.
Meanwhile, Malhar Shyam Nabar, Division Chief, Research Department, IMF in the briefing stated that, “Just to add that the current forecast that we have already takes a fairly conservative view on the sequential growth for the Indian economy for this year. But it’s true that with this very worrying uptick in cases that poses very severe downside risks to the growth outlook for the economy.”
Not only India, but China’s growth projections too were revised by the rating agency. The agency projected that China will be close behind and will grow at the growth rate of 8.4 per cent in FY21. Complementary to a higher growth in 2021, IMF has also projected China to grow by 5.6% in FY22. Gita Gopinath has stated that “While China’s economy had already returned to pre-pandemic GDP level in 2020, many other countries are not expected to do so until 2023,”.
What experts think about it?
However, the experts are of the opinion that the estimate is highly ambitious, given the recent surge in Covid-19 cases in the country and the resultant partial lockdowns in some states like Maharashtra. Madan Sabnavis, CARE Ratings Chief Economist has stated that 12.5 per cent economic growth for India in the current financial year is “very unlikely”, as a surge in Covid-19 cases was resulting in regional lockdowns.
He further gloomily added that even the projection of 11-11.2 per cent GDP growth by CARE ratings, now looked quite unlikely. This comes as the service sector has been immensely affected by the pandemic, given India is a service-driven economy. He stated that “As the movement of people are restricted, consumption will come down and that would affect even manufacturing,”.
As it has been reported, CARE Ratings had on Monday stated that lockdown in Maharashtra would dent India’s gross value added (GVA) during the 2021-22 financial year by 0.32 per cent and has the potential to cost 40,000 crores to the economy.
Indications were also given by the IMF’s economic counsellor and director of research, Gita Gopinath that despite such an optimistic picture of growth for India, the country is not expected to reach its pre-Covid-19 GDP level. Additionally, in a blog, she maintained that the US would grow by 6.4 per cent in 2021. She stated that “This makes the United States the only large economy projected to surpass the level of GDP it was estimated to have in 2022 in the absence of this pandemic,”.
The world growth projections
The IMF in its report additionally predicted a stronger recovery for the global economy. It has projected the world economy to grow by a significant six per cent in 2021, compared with 5.5 per cent it had predicted in January. Consequently, it has also projected the global economy to grow by 4.4 per cent in 2022. The world output contracted 3.3 per cent in 2020.
Gopinath said it had been a year into the Covid-19 pandemic and it could be seen that the global community was still confronted by extreme economic and social strains as human toll rose and millions remained unemployed. However a way out of the detestable situation is visible given the ingenuity of the scientific community and the full-fledged, robust vaccination drive undertaken by various economies.
The report has further stated that recoveries were also diverging dangerously across and within countries, given the uneven speed of vaccine rollout, limited policy support, and more reliance on tourism by certain economies.
It is to be noted that these divergent recovery paths are likely to create wider gaps in the living standards across countries when compared with pre-pandemic expectations.