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INDIA MUST ADOPT PLANS THAT AVERT THE WORST-CASE SCENARIO

Forecast of a Contraction in Economy

  • Forecasting the sharpest contraction in world output since the Great Depression of the 1930s, the IMF slashed its projection by 6.3 percentage points from its January forecast for 3.3% growth to a 3% decline. In contrast, the recession of 2009 saw world output contract by a mere 0.1%.
  • In projecting an annual expansion in Asia’s largest economy, the fund is rather optimistically foreseeing a sharp rebound in activity over the rest of the year.

Forecast for India

  • On India, the IMF has cut its projection for growth in the fiscal year that started on April 1, from January’s 5.8%, to 1.9%.
  • This again appears predicated on the fund’s baseline scenario that assumes that the pandemic would ‘fade in the second half of 2020’, allowing containment efforts to be unwound and economic activity to normalise.
  • Another key assumption by the IMF’s economists is the availability of policy support to nurture the revival once activity restarts.
  • India’s fiscal measures pale in terms of scale when compared with what several other nations have undertaken.
  • Given the size of the informal sector in India as well as the anticipated prolonged disruption in labour supply even in more formal parts of the economy, the Centre needs to proactively commit to a substantial stimulus package in order to ensure that once the economy reopens, it has the legs to run.
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September 2022
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