IMF Upgrades India Growth Forecast. Conditions Apply.

The International Monetary Fund has raised its growth forecast for the Indian economy even as a fresh wave of Covid-19 infections surge through the nation. The forecast faces downside risks from the sharp resurgence in infections, the IMF said.

India’s gross domestic product is expected to grow at 12.5% in FY22, the IMF said in its latest World Economic Outlook published on March 6. In January, the IMF had projected 11.5% growth for the Indian economy. The IMF projects a contraction of 8% for India in FY21 and a growth of 6.9% for FY23.

"The upgrade in forecast was because of the evidence we were getting from high frequency indicators in the past two months in terms of the normalisation of economic activity," said Gita Gopinath, chief economist at IMF, in a press briefing after the report’s release. These numbers precede the current wave of the virus which is quite concerning, she said.

Retail inflation is projected at 6.2% in FY21, before easing to 4.9% in FY22 and 4.1% in FY23.

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After an estimated contraction of 3.3% in 2020, the global economy is projected to grow at 6% in 2021, with growth moderating to 4.4% in 2022, the IMF said.

Global growth is expected to moderate to 3.3% over the medium term “reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labor force growth in advanced economies and some emerging market economies,” the report said.

The Covid-19 recession is likely to leave smaller scars than the 2008 global financial crisis due to the unprecedented policy response, the IMF said. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses.

Cumulative per capita income losses over 2020-22, compared to pre-pandemic projections, are equivalent to 20% of 2019 per capita GDP in emerging markets and developing economies excluding China, said Gita Gopinath, chief economist at IMF, in the foreword of the economic outlook. In advanced economies, the losses are expected to be relatively smaller.

This loss of income has reversed gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, she said. Another 80 million more are undernourished now compared to below.

Gopinath also flagged labour market scars that may worsen as a result of the pandemic. The crisis has accelerated the transformative forces of digitalisation and automation, which may mean many of the jobs lost are unlikely to return, Gopinath said. This will require worker reallocation across sectors, which often comes with severe earnings penalties, she said.