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What IMF Has Said About The Indian Economy?


Since the advent of the COVID-19 pandemic in India, people have been commenting a lot about the Indian government’s fiscal policy. There have been reports on how the government has shied away from spending money from its account.

Instead relying on the RBI’s monetary policy to revive the stocks market and economy through lower interest rates and more loan money. This resulted in India featuring some of the world’s worst affected economies in this pandemic situation.

With this regard, the IMF recently released some buttressing evidence in its World Economic Outlook. This report took into consideration some key factors such as industrial production and GDP losses of all the countries. Let us take a look at what they had to say about India

Industrial Production- manufacturing

The Indian economy was the deepest hit in the month of April among all the world countries. The industrial output of the country plummeted this month during the nationwide lockdown.

This index that gauges the country’s factory output saw a record contraction of 57 percent in the month of April.

Since then, the country’s economy and shares market has opened up gradually and industrial output has increased. However, it is still significantly below its pre-pandemic levels.

GDP Losses

This report showcased how the countries stack up against each other when expected GDP losses of the short term (2019-2021) are compared with the medium-term GDP losses (2019-2025). Even under this report, IMF found India to be the worst hit not just in short term but even in the medium term.

Medium-term will be ending with the end of the current government. Other countries whose stocks and economies are likely to be less affected compared to India are Brazil, Indonesia, Pakistan, USA, and China.

Per Capita Income

The IMF report received maximum attention for its estimation that the per capita income of Bangladesh in 2020 would be higher than that of India in 2020.

This has been because even though the Indian economy contracted due to the COVID impact, Bangladesh’s economy grew by over 4 percent. This in addition to the lower population of the country helped it in gaining the lead in the race.

Alternative evolutions of the fight against COVID Pandemic

Other than the above-given points, there were several other key pointers that are relevant in today’s economic scenario. They explain several scenarios when things would turn out either better or worse than popular expectations. Let us take a look at all the alternatives.

  • Contrary to India’s case where the GDP contraction rate was doubled by the IMF, The picture has become quite better on the world economic platform. While global growth was said to contract by 4.4 percent in 2020, it is projected to grow by 5.2 percent in 2021. After that, it will moderate down to 3.5 percent. This has been done on the assumption that even though social distancing will continue to be practiced in 2021, it will fade down over time. This would happen as and when the expansion of vaccine coverage takes place and improvisation of therapies. It is assumed that local transmission would be brought down to low levels by the end of 2022 everywhere.
  • There is another alternative where containing the virus would prove to be more difficult and a protracted struggle until a vaccine becomes available.
  • There is another alternative in which it is assumed that all the dimensions of fighting the Coronavirus go well.

Other Takeaways From WEO update

Last but not the least, there are three more worrying takeaways that can be deduced from this latest IMF report.

  • Firstly, poverty will increase. The pandemic will cause a reversal in all the country’s progress since the 90s in reducing the poverty. Many more people would be falling below the threshold income of extreme deprivation.
  • Further increase in income inequalities. The pandemic has had a very adverse effect on economically vulnerable people. These include women and young workers. The burden of crisis would be felt unevenly across all the sectors.
  • Last but not the least, human capital accumulation will receive a major setback. This has been showcased by the fact how learners around the world have received a major setback due to university and school closures. This may also result in poorer nutrition and greater food insecurity as many of these schools provided free or subsidized meals to the children coming from lower-income households.

All the above-given challenges are amplified in India’s case because it is the worst hit among all the countries mentioned above. Thus, policymakers will now have to deal with higher inequality, more poverty, and reduction in human capital accumulation even as they chart their next course of action.

This even as they tend to find solutions to soaring debt levels caused due to rising expenditures and falling government revenue.

(Syndicated Content)

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