IMF: India could show a faster than expected post-pandemic recovery

IMF commends Indian authorities' "swift, substantial" response to COVID-19 pandemic, noted possibility of "a faster than expected recovery"

IMF commends Indian authorities'
IMF commends Indian authorities' "swift, substantial" response to COVID-19 pandemic, noted possibility of "a faster than expected recovery"

IMF: India’s economy to grow at 9.5% in 2021, 8.5% in 2022

The International Monetary Fund (IMF) has commended Indian authorities’ “swift and substantial” response to the COVID-19 pandemic and noted that there is the possibility of “a faster than expected recovery”.

The Directors lauded the authorities’ response to the pandemic which includes scaled-up support to vulnerable groups, monetary policy easing and liquidity provision, accommodative financial sector, and regulatory policies, and continued structural reforms.

The IMF on Friday reported on its executive board’s consultations held with India to assess the state of its economy and finances. It said, “The authorities’ economic response, which was swift and substantial, has included fiscal support, including scaled-up support to vulnerable groups, monetary policy easing, liquidity provision, and accommodative financial sector and regulatory policies.”

It appreciated the fact that despite the pandemic, the authorities continued to introduce structural reforms, including labour reforms and a privatization plan.

It has however warned of the risks from the COVID-19 pandemic lurking ahead especially due to its deleterious effect on people’s development.

The “Article IV Consultations” in reference to the article in the IMF agreement requiring the periodic assessment, reports, “The economic outlook remains clouded due to the uncertainties the pandemic has created. It will contribute to both downside and upside risks. A persistent negative impact of COVID-19 on investment, human capital, and other growth drivers could prolong the recovery and impact medium-term growth.”

The IMF is also optimistic about the recovery being faster than expected. They said that the speeding up of vaccination and better therapeutics will help contain the spread and limit the impact of the pandemic.

They are looking forward to India’s growth potential considering the successful implementation of the announced wide-ranging structural reforms.

The IMF highlighted that India was among the fastest-growing economies in the world in the decade before the pandemic. It has already lifted millions out of poverty. While the economy was moderating prior to the COVID-19 shock, the pandemic implied unprecedented challenges.

Even after the deadly second wave, the economy is gradually recovering.

After the first wave, the GDP contracted an unprecedented 7.3 percent in FY (fiscal year) 2020/21.

The second wave resulted in another sharp fall in activity, albeit smaller and shorter, and recent high-frequency indicators suggest an ongoing recovery.

The IMF is positive on India’s growth. They project it at 9.5 percent in FY2021/22 and 8.5 percent in FY2022/23.

While the inflation pressures have been higher, inflation in fact eased to 5.6 percent in July, “returning to within the RBI‘s (Reserve Bank of India) inflation target of 4.2 percent, driven by softer food prices and base effects”, it said.

The IMF said that the fiscal deficit has increased to 8.5 percent for the Central government and 12.8 percent for the state governments because of “the contraction in economic activity, lower revenue, and pandemic-related support measures”.

Large corporates have benefited from the “easier conditions in capital markets” even though “despite policy support, bank credit growth has remained subdued”.

The foreign exchange reserves have increased because of net inflows and improvement in the current account, it said, but expected a “return to a deficit of about 1 percent of the GDP in FY2021/22 due to a gradual recovery in domestic demand and higher oil prices”.

[With Inputs from IANS]

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