India’s economic downturn is all the more steep considering that in the fourth quarter, India was one of the select few emerging market economies which performed better than expected — along with China, Thailand, Vietnam, Chile and Malaysia.
According to the IMF, the contraction in India’s economy marked a “historic low” and is the lowest since 1961, when the IMF started maintaining records of India’s GDP data. It also projected that India’s fiscal deficit is expected to increase by over 50%, from the earlier projection of 7.5% of GDP to 12.1% of GDP while debt will increase to 84% of GDP, from the April WEO projection of 74.4% of GDP.
“There’re two main reasons for the downgrade for India — one, the partial lockdown has lasted much longer than we had assumed…and second, because, we’re still seeing rising cases in India,” said Gita Gopinath, Chief Economist, International Monetary Fund (IMF), unveiling the World Economic Outlook report, which projected that the Indian economy is set to contract by 4.5% in 2020-21, while the world economy would contract by 4.9% in 2020 in what has been dubbed as “the worst recession since the Great Depression” of the 1930s.
In April, the IMF had projected that the Indian economy will grow at 1.4% in the current fiscal year. The silver lining? There’s expected to be a sharp rebound in the next financial year, 2021-22, with a GDP growth rate of 6% — which however, will be lower than the April WEO projections of 7.4%.
The IMF’s Chief of World Economic Studies Division, Malhar Nabar, said that “there’s scope for more monetary policy support”, in response to a question if the downgrade reflected dissatisfaction at the Rs 20.97 lakh crore ‘stimulus’ package announced by the government last month. While appreciating the RBI’s interest rate cuts, that he said were more in the nature of “liquidity support actions”, and which “helped avert an even worse downturn”, Nabar added that India had “further room for support on the monetary policy side” to prevent “an even deeper slide”.
Asia has been among the fastest-growing regions in the world. During previous crises such as the Asian financial crisis in 1997 and the global financial crisis around 2008-2009, the region still managed to grow, said the International Monetary Fund.
But for the first time in 60 years, Asia as a region will not register any economic growth this year because of the coronavirus pandemic, according to IMF forecasts.
“While there is huge uncertainty about 2020 growth prospects, and even more so about the 2021 outlook, the impact of the coronavirus on the region will — across the board — be severe and unprecedented,” Chang Yong Rhee, director of IMF’s Asia and Pacific Department, wrote in a blog post.