IMF lowers India’s GDP forecast to 9.5% for FY22 in view of ‘severe’ setback caused by 2nd wave

IMF slashes India's growth forecast by 3 percentage points in July World Economic Outlook report from April forecast of 12.5%, but raises 2022-23 forecast to 8.5%.

The International Monetary Fund (IMF) headquarters in Washington, D.C., on 3 April 2021 | Photo: Samuel Corum | Bloomberg

New Delhi: The International Monetary Fund Tuesday lowered India’s growth forecast for the year 2021-22 by 3 percentage points to 9.5 per cent, citing severe setback to economic recovery due to the second wave of the pandemic.

In April, the IMF had forecast that the Indian economy will grow at 12.5 per cent in 2021-22. However, this was before the devastation wreaked by the aggressive second Covid wave in India in April and May this year.

In its latest edition of the World Economic Outlook (WEO) report, released Tuesday, the IMF also raised India’s growth forecast for 2022-23 to 8.5 per cent. This is an increase of 1.6 percentage points from the forecast of 6.9 per cent made by the international organisation in its April report.

However, this was primarily because of the downward revision in growth forecast this current year.

“Steady recovery is not assured anywhere so long as segments of the population remain susceptible to the virus and its mutations. Recovery has been set back severely in countries that experienced renewed waves — notably India,” noted the July update to the outlook report.

“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,” it added.

The report also pointed out that countries lagging in vaccinations, such as India and Indonesia, could suffer the most among G20 economies in the event of the emergence of a highly transmissible variant.

Growth forecasts for advanced economies raised, emerging economies lowered

The July WEO report retained the global growth forecast for 2021 at 6 per cent but while the forecasts for advanced economies were raised, the growth projections for emerging market economies were lowered.

The growth projections for advanced economies were raised by 0.5 percentage points to 5.6 per cent while the forecasts for emerging market economies were lowered by 0.4 percentage points to 6.3 per cent.

Among major economies, the GDP forecast of the US was raised by 0.6 percentage points to 7 per cent and China’s growth forecast was lowered by 0.3 percentage points to 8.1 per cent.

Speaking at a virtual press conference, IMF chief economist Gita Gopinath expressed worry over the growing fault lines between advanced and emerging economies.

“The upgrade for advanced economies is offset entirely by downgrade for emerging developing economies. And that is the big concern, because it was already diverging and is exacerbated in this period. It’s a reflection of some very big fault lines that are growing,” said Gopinath.

She pointed out that one reason for this is the unequal access to vaccinations. Another reason, she said, is that “fiscal support is much easier to maintain in advanced economies which have easy access to financing while for many developing countries, it’s either already over or is being pulled back.”