COVID-19 impact: IMF slashes India’s growth forecast for FY21 to 1.9%

By: |
Published: April 15, 2020 5:30 AM

On the same day, when Prime Minister Narendra Modi extended a nation-wide lockdown to May 3, investment bank Barclays trimmed its growth forecast for the country to 0% for calendar year 2020 from its earlier projection of 2.5%.

The IMF has projected a rebound in the global economic growth in 2021 at 5.8%The IMF has projected a rebound in the global economic growth in 2021 at 5.8%

The International Monetary Fund (IMF) on Tuesday sharply cut its India growth forecast to 1.9% for FY21 from 5.8% projected in January, and predicted a 3% contraction for 2020 global GDP, warning that the COVID-19 outbreak has plunged the global economy into its worst recession since the Great Depression in 1930s.

It also expected India’s FY20 growth to touch 4.2%, compared with the statistics department’s pre-pandemic estimate of 5%. However, India’s economic expansion will likely rebound to 7.4% in the next fiscal (FY22), the Fund said.

On the same day, when Prime Minister Narendra Modi extended a nation-wide lockdown to May 3, investment bank Barclays trimmed its growth forecast for the country to 0% for calendar year 2020 from its earlier projection of 2.5%. Rating agency ICRA, too, revised down its growth forecast for the country to anywhere between -1% to 1% in FY21, on assumption that GDP could contract in a range of 10-15% in the first quarter. The World Bank has slashed its FY21 India growth forecast to anywhere between 1.5% and 2.8%, the lowest in around three decades.

Barclays pegs the country’s economic loss due to the disruption in several manufacturing and service sectors at close to $234.4 billion, or 8.1% of GDP, in 2020, assuming that the country would remain under a partial lockdown at least until the end of May.

The pandemic and the consequent lockdown only exacerbated the woes for the Indian economy that was going through an extended phase of slowdown, thanks partly to subdued consumption and elusive private investments.

In its bi-annual World Economic Outlook, the Fund termed the COVID-19 outbreak as a crisis like no other and predicted that even in the base case scenario (in which the impact of the pandemic wanes in the second half of 2020 and containment efforts are gradually unwound), the contraction in global GDP will be much sharper than a 0.1% fall during the 2008–09 financial crisis.

The IMF has projected a rebound in the global economic growth in 2021 at 5.8% but it adequately flagged risks to the forecasts from “lingering uncertainty about contagion, confidence failing to improve, and establishment closures and structural shifts in firm and household behaviour, leading to more lasting supply chain disruptions and weakness in aggregate demand”.

The Fund conceded that there is extreme uncertainty around its global growth forecast, and that many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices.

IMF said policymakers will be required to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses, given that the economic fallout reflects particularly acute shocks in specific sectors.

“Fiscal measures will need to be scaled up if the stoppages to economic activity are persistent, or the pickup in activity as restrictions are lifted is too weak. Broad-based fiscal stimulus can pre-empt a steeper decline in confidence, lift aggregate demand, and avert an even deeper downturn. But it would most likely be more effective once the outbreak fades and people are able to move about freely,” it added.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1West Bengal’s unemployment rate at 6.5% in June ‘far better’ than that of India, says CM Mamata Banerjee
2Biggest economic retaliation step! India puts complete ban on import of power equipment from China
3GST Council: Why some revenue department officials are disappointed with state finance ministers