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Predictions of IMF on the Indian Economy: 4.5% Contraction in 2020

The International Monetary Fund (IMF) on its World Economic Outlook update, recently projected a sharp contraction of 4.5 per cent for the Indian economy in 2020, a "historic low," citing the unprecedented coronavirus pandemic that has nearly jeopardised all economic activities, but said the country is expected to bounce back in 2021 with a robust six per cent growth rate. It is notable that in 2019, India's growth rate was 4.2 per cent.

"We are projecting a sharp contraction in 2020 of -4.5 per cent. Given the unprecedented nature of this crisis, as is the case for almost all countries, this projected contraction is a historic low,”  Gita Gopinath, IMF's Chief Economist, told the media  as she released the World Economic Outlook Update.

Mrs Gopinath as well remarked that , the unprecedented global sweep of this global  crisis hampers recovery prospects for export-dependent economies and jeopardises the prospects for income convergence between developing and advanced economies. The COVID-19 pandemic has had a more detrimental impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast (1.9 percent trench) made in April 2020 . 

"India's economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April,” the IMF said. The IMF's record reveals that this is the lowest ever for India since 1961  . 

With a view to revive the economy shuttered by the coronavirus lockdown, PM Narendra Modi had announced a Rs 20 lakh crore special economic package which was  subsequently announced by  Finance Minister of India , Mrs. Nirmala Sitharaman .

However, Mrs. Gopinath indicated that a large portion of the economic relief package was “below-the-line off-budget spending” as opposed to on-budget spending. Off-budget spending is the expenditure that is not funded by the government through the budget.

  Gita Gopinath also said that India has the ability to increase on-budget spending to mitigate economic risks, especially for vulnerable households and small and medium enterprises. She also said in an another interview that the Special  Economic stimulus  Package was substantial but lacks on budget spending. IMF  believes  that the measures being undertaken on the financial sector front, providing liquidity for NBFCs (Non Banking Financial Corporations) , HFCs and making credit available through risk mitigation measures on the banking side will be effective for the shorter run. The IMF also called for Direct Income Support in case of India.

When asked for the reason why India was downgraded  in the newly published World Economic Outlook, she suggested two main reasons : The first reason, she , was the duration of the partial lockdown in India — it is longer than IMF had anticipated in April. Another factor that led to the change in outlook is the fact that the  health crisis in India has not abated despite containment measures.

There have been mixed responses on how the stimulus package would ease the burden on the Economic life of the country and the real question lies on how the government’s economic package works in real time in light of  this new prediction by the IMF . But all that set apart what is of unanimous concern being for India is to be truly self-reliant and self-confident, public investment in education, human capability and research and development and rural entrepreneurial and agricultural growth has to increase.

Reporter : Arjun Raj.S

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