India GDP: IMF projects 10.3% contraction in FY21, sharp rebound in FY22

The International Monetary Fund (IMF) on October 13 said it expects India’s gross domestic product (GDP) to decline by 10.3 percent in FY21.

It revised India's GDP growth, since its June forecast of a 4.5 percent drop, while reflecting a severe-than-anticipated contraction in economic activities in Q1 FY21, amid the nationwide lockdown due to the COVID-19 pandemic.

Speaking on its biannual World Economic Outlook, IMF's Chief Economist Gita Gopinath said all developing economies and emerging markets are expected to contract this year. She even pointed out that countries like India and Indonesia will also feel the contraction in their economy.

Also read: World economy faces long, hard climb out of pandemic, says IMF Chief Kristalina Georgieva. 

Stating that India's GDP contracted much more severely than expected in the second quarter, Gopinath said, "The economy is projected to contract by 10.3 percent in 2020, before rebounding by 8.8 percent in 2021."

IMF claimed that the recovery for the global economy will likely be long, uneven, and uncertain. However, the international monetary body stated that some economies may recover faster than anticipated, while some may see worsening prospects.

Expecting a stronger recovery in the third quarter of FY21, Gopinath said, "It is essential that fiscal and monetary policy support are not prematurely withdrawn as best possible."

Previously in the June quarter (Q2), India's GDP plunged below what was projected by IMF due to sharp compression in consumption and a collapse in investment. GDP contracted 23.9 percent, which was the worst among the G20 economies.

Gopinath said economies will need to prioritise critical spending for health and transfers to the poor and ensure maximum efficiency. IMF was of the opinion that economies like India are managing the COVID-19 crisis with fewer resources since they are constrained by higher borrowing costs and elevated debts.

Fearing the rise in global poverty and inequality, IMF's Chief Economist said daily wage labourers and others outside the formal safety net lost income after mobility restrictions were imposed. She pointed out that "close to 90 million people could fall below the $1.9 a day income threshold of extreme deprivation" in 2020.

Apart from this, Gopinath assumed that global growth to progressively decline to 2.1 percent in 2050 from 3.7 percent in 2021.