The International Monetary Fund (IMF) has cut India’s GDP growth estimate for FY22 by 300 basis points to 9.5 per cent from its April projection of 12.5 per cent. It has retained the forecast for global economy at 6 per cent in 2021.

“Growth prospects in India have been downgraded following the severe second Covid wave during March-May and expected slow recovery in confidence from that setback,” said the IMF in its latest World Economic Outlook (WEO).

Fiscal measures

Further, it mentioned that countries lagging in vaccination, such as India and Indonesia, will suffer the most among G-20 economies. It also noted that additional fiscal measures have been proposed to mitigate the economic consequences of recurring infection waves in counties such as India. However, it has upped India’s growth estimate for fiscal year FY23 by 160 basis points to 8.5 per cent. The IMF’s remarks come when the Indian government claimed it has crossed the landmark of 44.19 crore doses administered.

The IMF’s growth projection for current fiscal is on a par with the estimate of S&P and RBI of 9.5 per cent. However, it is higher than Moody’s forecast of 9.3 per cent and close to Crisil’s range of 8.2-9.8 per cent. Other agencies have also cut the forecast to single digit.

World forecast

Titled ‘Fault Lines Widen in the Global Recovery’, the latest edition of WEO said: “Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalisation of activity later this year (almost all advanced economies), and those that will still face resurgent infections and rising Covid death tolls.

“The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere,” it said.

In her blog accompanying the WEO, Gita Gopinath, Economic Counsellor of the IMF, said growth prospects for advanced economies this year have improved by 0.5 percentage point, but this is offset exactly by a downward revision for emerging market and developing economies, driven by a significant downgrade for emerging Asia.

“For 2022, we project global growth of 4.9 per cent, up from our previous forecast of 4.4 per cent. But again, underlying this is a sizeable upgrade for advanced economies, and a more modest one for emerging market and developing economies,” she said.

According to the fund’s estimate, the pandemic has reduced per capita incomes in advanced economies by 2.8 per cent, relative to pre-pandemic trends over 2020-22, compared with an annual per capita loss of 6.3 per cent a year for emerging market and developing economies (excluding China).

Vaccination drive

Gopinath mentioned that close to 40 per cent of the population in advanced economies has been fully vaccinated, compared with 11 per cent in emerging economies, and a tiny fraction in low-income developing countries.

“Faster-than-expected vaccination rates and return to normalcy have led to upgrades, while lack of access to vaccines and renewed waves of Covid cases in some countries, notably India, have led to downgrades.”

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