The International Monetary Fund (IMF) Wednesday said there is an “urgent need for policy actions” in India as the economic toll from the coronavirus pandemic is likely to be “large”. The agency, however, said the financial stimulus package unveiled by the finance ministry for coronavirus is a step in the right direction.
In an interview to news agency PTI, Director of Fiscal Affairs Department of IMF Vitor Gaspar said the government needs to prioritise spending on health care, providing income support to most vulnerable sections of society, and supporting the MSME sector.
“India has limited fiscal space, but also a need to support the health and economic wellbeing of its citizens. In the current exceptional circumstances, the need for policy action is urgent,” Gasper told PTI.
“The economic toll from the pandemic is likely to be large. We estimate that growth in the fiscal year 2020/21 will be reduced to 1.9 per cent, reflecting both the domestic COVID-19 impact from the unprecedented national lockdown and weak external demand,” he added. Follow Coronavirus LIVE news Updates
On Tuesday, the IMF sharply cut its India growth forecast to 1.9 per cent for FY21 from 5.8 per cent projected in January. IMF 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 IMF said.
Gaspar said the fiscal stimulus package unveiled by Finance Minister Niramala Sitharaman to mitigate the impact of the coronavirus is a step in the right direction. Sitharaman had unveiled a Rs 1.70 lakh crore economic package on March 26 involving free foodgrain and cooking gas for the poor for the next three months.
“The fiscal stimulus package is one step in the right direction. The package has appropriately included in-kind (food; cooking gas) and cash transfers to lower-income households; insurance coverage for workers in the healthcare sector; and wage support to low-wage workers,” he said.
“Similarly, a three-month moratorium was allowed for all term loans for banks and non-bank financial companies, as well as interest deferral for working capital loans,” he said.
Gaspar said the IMF believes India should take measures on fiscal, monetary and financial sector policies in the near term to save the economy from slipping into a crisis.
On fiscal policy, additional support is needed in the near term, including on health care and for small and medium-sized firms and vulnerable households, beyond the fiscal stimulus measures already announced, he said.
Over the medium term, though, substantial new measures will be needed to bring the deficit and debt back towards the central government’s medium-term targets (deficit of three per cent and debt of 40 per cent as a share of GDP), he added.
On monetary policy, Gaspar said India should maintain a strong easing bias to mitigate any sharp COVID-19-related slowdown and support the recovery, given the sharp slowdown in domestic and global activities, moderating inflation amid a wide negative output gap, and lower commodity prices.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines