COVID-19 crisis: IMF slashes FY21 India growth forecast to 1.9% from 5.8%; warns of global recession

It also expected India’s FY20 growth to touch 4.2 per cent, compared to the Statistics Department’s pre-pandemic estimate of 5 per cent. However, India’s economic expansion will likely rebound to 7.4 per cent in the next fiscal (FY22), the Fund said.

Rating agency ICRA, too, revised down its FY21 growth forecast for the country to anywhere between (-)1 per cent to 1 per cent, on the assumption that GDP could contract in a range of 10-15 per cent in the first quarter.

The World Bank had cut its FY21 India growth forecast to anywhere between 1.5 per cent and 2.8 per cent, lowest in around three decades.

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The pandemic and the consequent lockdown only exacerbated the woes for the Indian economy, which was undergoing an extended phase of slowdown, thanks partly to subdued consumption and elusive private investments.

In its bi-annual World Economic Outlook, the Fund termed the COVID-19 outbreak as a crisis like no other and predicted that even in the base case scenario (in which the impact of the pandemic wanes in the second half of 2020 and containment efforts are gradually unwound), the contraction in global GDP will be much sharper than a 0.1 per cent fall during the 2008–09 financial crisis.

The IMF has projected a rebound in global economic growth in 2021 at 5.8 per cent but it adequately flagged risks to the forecasts from “lingering uncertainty about contagion, confidence failing to improve, and establishment closures and structural shifts in firm and household behaviour, leading to more lasting supply chain disruptions and weakness in aggregate demand”.

The Fund conceded that there is extreme uncertainty around its global growth forecast, and that many countries face a multi-layered crisis, comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices.

It said policymakers will be required to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses, given that the economic fallout reflects particularly acute shocks in specific sectors.

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