Short-term growth prospects in India remain clouded by the global and internal slowdown and uncertainties related to the evolution of the coronavirus pandemic, an IMF official said.
The main downside risk to India’s growth forecast is the continued spread of the Covid-19 pandemic as the health crisis has yet to be contained, a senior IMF official said Tuesday, noting that prospects for The country’s short-term growth continue to be clouded by the global and domestic slowdown and the uncertainties related to the coronavirus.
Recently, the International Monetary Fund (IMF) in its report projected that the Indian economy would contract -4.5 percent in 2020, which is the slowest Indian growth it has on record since 1961.
“The main downside risk to India’s growth forecast is the continued spread of the pandemic as the health crisis has not yet been contained. Other outbreaks may require additional blocks to contain the pandemic. Concerns about the virus They could also lower consumer confidence and delay economic recovery, Chang Yong Rhee, director of the IMF’s Asia and Pacific Department, said in an interview with PTI.
Covid-19’s economic impact has been substantial and broad-based. High-frequency indicators point to a sharp decline in economic activity, as reflected in industrial production, business sentiment (for example, in the Purchasing Managers’ Indices), vehicle sales, and trade, he said.
The downward revision of growth in FY20 / 21 is mainly driven by the continued increase in the number of COVID cases in India, he said.
“This led us to make two specific adjustments. First, the supposed duration of the partial blockade was extended somewhat, according to the latest government announcement. Second, and more importantly, we made more conservative assumptions about the speed of recovery given that the health crisis has not yet been contained despite the prolonged blockade, “said Rhee.
According to him, the short-term growth prospects in India continue to be clouded by the global and internal slowdown and the uncertainties related to the evolution of the coronavirus pandemic.
Noting that the pandemic and the blockade have a severe impact on industries and services (hotels, restaurants and transport sectors), he said that the release of GDP in the first quarter of 2020 (January to March), including the beginning of the period of blocking, points to a decrease in the manufacturing and construction sectors compared to last year and the previous quarter.
Rhee said that the Indian authorities have so far provided substantial support for the aggregate policy in terms of monetary, financial, and fiscal measures. The significant monetary easing and liquidity support helped ease any sharp adjustment to aggregate liquidity conditions, he added.
“In terms of fiscal policy, substantial credit guarantees and related schemes could play an important role in preventing an even sharper contraction in economic activity, as long as they are well implemented, specific, and temporary, transparent and provide liquidity to major companies. Need, Rhee said in response to a question.
That said, there is room for more fiscal stimuli within the budget to bolster the pandemic response and recovery in the Indian economy, particularly in the form of support for vulnerable households. Additional financial support to vulnerable SMEs is also a priority.
More specific transfers to the poorest members of society are vital to maintaining a basic standard of living while out of work, and while obtaining even basic needs is a challenge, he said.
However, he noted that a return to economic normality is beyond the scope of what can be achieved only through economic stimulus; this is unlikely to be achieved until the threat of loss of life from Covid-19 has been removed.
When asked about the impact of tensions between India and China, he said that deepening trade integration within the region and globally would help India’s investment, growth, and job creation agenda.
“Avoiding the escalation of trade disputes is important to avoid the adverse impact on the Indian, regional and global economy, especially amid this current juncture of unprecedented uncertainty for the global economy,” he said.
Rhee said the priority at the current juncture remains to contain the pandemic and its impact on the Indian economy.
Currently, India has the fourth-highest number of confirmed Covid-19 cases in the world with over 566,000 positive infections and over 16,000 deaths.
“The design of exit strategies must take into account the evolution of the coronavirus pandemic and the potential impact on the healthcare infrastructure,” he said.
“Three specific challenges that are reflected in our updated forecast for the economy relate first, with the containment of Covid-19 and the health sector in general, second, with the vulnerabilities of the financial sector, and third, with the fiscal position from India in the medium term, Rhee said.
India’s fiscal position will deteriorate as a result of the pandemic and the (appropriate) deployment of resources to counter the negative health and economic effects of the virus and related closure measures, he said.
Today’s increased spending must be targeted, timely and temporary, and must be accompanied by a credible and well-communicated medium-term consolidation plan, once the virus is well controlled, Rhee said.
According to him, a prolonged slowdown could exacerbate pre-pandemic financial vulnerabilities.
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