The International Monetary Fund (IMF) has projected India's economy to contract at a higher rate of 10.3 per cent than its earlier prediction of 4.5 per cent due to rise in Covid cases. On the other hand, the Fund now expected the world economy to fall less severely by 4.4 per cent than 5.2 per cent it projected earlier for 2020.
The IMF in its latest World Economic Outlook, released on Tuesday, forecast India's economic growth to rebound to 8.8 per cent in 2021-22, much higher than the 6 per cent it forecast earlier.
The Outlook, titled A Long and Difficult Ascent, projected only the Chinese economy to grow. China was expected to grow by 1.9 per cent in 2020, faster than one per cent expected earlier.
IMF's projections are in line with most other economists and analysts who expected India's economy to contract in double digits during 2020-21. Its Bretton Woods sister, World Bank, recently projected Indian economy to contract little less severely by 9.6 per cent. But the Bank also upped the scale of contraction for Indian economy from earlier 3.2 per cent.
The IMF saw the world recovery at an uneven pace with the advanced world now expected to contract less and developing countries including India at a higher rate. The global economy was projected to de-grow by 4.4 per cent in 2020 against 5.2 per cent earlier.
IMF economic counsellor and director of research Gita Gopinath said while the global economy is coming back, the
ascent will likely be long, uneven, and uncertain. "Indeed, compared to our forecast in June, prospects have worsened significantly in some emerging markets and developing economies where infections are rising rapidly," she said.
Consequently, she added emerging market and developing economies, excluding China, are projected to incur a greater loss of output over 2020-21 relative to the pre-pandemic projected path when compared to advanced economies. "These uneven recoveries significantly worsen the prospects for global convergence in income levels," Gopinath said.
The IMF said second quarter GDP (the first quarter in terms of the fiscal year 2020-21) was weaker than projected in India where domestic demand plunged following a very sharp compression in consumption and a collapse in investment. India's GDP contracted 23.9 per cent in the quarter.
Signs of recovery are also uneven in the globe, said IMF. For instance, business surveys of purchasing managers show firms in the United States, euro area, China, and Brazil expanded output successively in July and August compared with the previous month, whereas the opposite was true elsewhere in India, Japan, and Korea. For September, these indicators point to stronger activity in manufacturing but some setbacks for services, most likely reflecting the increase in infections, it said.
The Fund said inflation in emerging market and developing economies inflation declined sharply in the initial stages of the pandemic, although it has since picked up in some countries such as India, reflecting supply disruptions and a rise in food prices. India's retail inflation rose to an eight-month high of 7.34 per cent in September, pushed up by the double-digit food inflation. This was the sixth month in a row that the inflation rate remained above RBI's comfort zone of above six per cent.
The IMF projected India's current account balance to show a surplus of 0.3 per cent of GDP in 2020-21, a rarity in the country. It attributed this to lower oil prices and weak domestic demand.
Carbon emissions
The IMF said whereas advanced economies have historically contributed the lion’s share of emissions, China and India, as large and fast-growing emerging market economies, are significant emitters and are expected to continue to account for growing shares of carbon emissions.
It said advanced economies cannot successfully mitigate climate change by themselves, as they account for a declining share of global emissions. By contrast, the five largest countries/economic union—the United States, China, the European Union, Japan, and India—acting jointly can make a large dent in global emissions.
China remains a key driver of emission growth, and its impact picked up again in 2019, after a period of gradual regression. India and other emerging markets’ contribution in 2019 fell substantially, it said.
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