IMF scales up India’s FY22 GDP growth forecast to 12.5%; experts unsure

The Fund’s projection suggests India would again become the world’s fastest-growing large economy


IMF | Indian Economy | GDP

The International Monetary Fund (IMF) has raised its projection for India’s economic growth in the current financial year by one percentage point to 12.5 per cent. Experts, however, say the estimate is highly ambitious, given the recent rise in Covid-19 cases in the country and the resultant partial lockdowns in some states.

The forecast, published in the IMF’s World Economic Outlook, suggests India would again become the fastest-growing large economy in the world. In fact, India is the only country among major world economies that is projected to grow at a double-digit rate during FY22. China comes closest, with a forecast of 8.4 per cent economic expansion.

The IMF also sees India’s gross domestic product (GDP) growing by 6.9 per cent, a rate 10 basis points higher than its earlier projection, in the next financial year. Should that happen, India would become the most rapidly expanding large economy in the world; the closest competitor, China, is projected to grow by 5.6 per cent.

The IMF’s projection for India in the current financial year is the upper end of a range that the World Bank’s forecast recently. Considering the uncertainty caused by Covid-19 cases, the World Bank gave a range for India’s economic growth – from 7.5 per cent to 12.5 per cent – in FY22. However, it also said India was likely to grow by 10.1 per cent during the year.

CARE Ratings Chief Economist Madan Sabnavis said 12.5 per cent economic growth for India in the current financial year was “very unlikely”, as rising Covid-19 cases were resulting in regional lockdowns. He added that even his projection of 11-11.2 per cent GDP growth now looked unlikely, as services were largely affected. India is a service-driven economy. “As the movement of people are restricted, consumption will come down and that would affect even manufacturing,” he said.

CARE Ratings had on Monday said that even lockdown in Maharashtra would dent India’s gross value added (GVA) during the 2021-22 financial year by 0.32 per cent.

Despite such an optimistic picture of growth for India, however, the country is not expected to reach its pre-Covid-19 GDP level. Indications of this were given by the IMF’s economic counsellor and director of research, Gita Gopinath. In a blog, she said the US would grow by 6.4 per cent in 2021. “This makes the United States the only large economy projected to surpass the level of GDP it was estimated to have in 2022 in the absence of this pandemic,” she said.

Among emerging markets and developing economies, China was projected to grow this year at 8.4 per cent, she said. “While China’s economy had already returned to pre-pandemic GDP level in 2020, many other countries are not expected to do so until 2023,” she added.

IMF also scaled up its 2021 projections for the emerging and developing Asia regional group by 0.6 percentage point, reflecting a stronger recovery than initially expected after lockdowns were eased in some large countries, including India.

The Fund said it expected India’s average consumer price index-based inflation rate to come down to 4.9 per cent during the current financial year from 6.2 per cent in the previous year. The average inflation rate would further fall to 4.1 per cent in the next financial year. Current account balance would slip into a deficit of 1.2 per cent in FY22, against a surplus of one per cent the previous year.

World growth

The IMF is now projecting a stronger recovery for the global economy, at six per cent in 2021, compared with 5.5 per cent it predicted in January. It has also projected global economy to grow by 4.4 per cent in 2022. The world output contracted 3.3 per cent in 2020.

Gopinath said it had been a year into the Covid-19 pandemic and the global community was still confronted by extreme social and economic strains, as human toll rose and millions remained unemployed. Yet, even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis was increasingly visible. Thanks to the ingenuity of the scientific community, hundreds of millions of people are being vaccinated and this is expected to power recoveries in many countries later this year.

95 million more people entered extreme poverty

Gopinath said recoveries were also diverging dangerously across and within countries, as economies with slower vaccine rollout, more limited policy support, and more reliant on tourism did not do very well.

These divergent recovery paths were likely to create wider gaps in living standards across countries when compared with pre-pandemic expectations. The average annual loss in per capita GDP over 2020-24, relative to pre-pandemic forecasts, was projected to be 5.7 per cent in low-income countries and 4.7 per cent in emerging markets, while in advanced economies the losses were expected to be smaller at 2.3 per cent, she said. Such losses were reversing gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020 when compared with pre-pandemic projections.

Uneven recoveries are also occurring within countries as young and lower-skilled workers remain more heavily affected. Women have also suffered more, especially in emerging market and developing economies.

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