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Will India show the way on growth? IMF thinks so 

Economic fortunes are on a roller coaster ride, but we need to go beyond all the headline numbers to get the real picture on growth

October 15, 2021 / 02:29 PM IST
Representative Image

Representative Image

The International Monetary Fund (IMF) recently released its World Economic Outlook (WEO), updating growth projections for its 190 member-countries. The IMF releases its much anticipated WEO report biannually in April and October and releases two updates in January and June.

Since COVID-19 struck in 2020, the WEO has served as an indicator of the pandemic’s impact on the world economy, heightening its importance. In this article, we discuss the IMF’s outlook on the Indian economy, which has experienced a steep turnaround since 2020.

Before discussing India, let us see how the IMF has revised global growth projections in this period. In January 2020, the multilateral agency had projected world economy growth for 2020 and 2021 at near similar levels of 3.3 percent. Developed countries were expected to grow 1.6 percent in both years; the developing world’s average growth was projected at 4.5 percent  in both years.

IMF 1510_001

And then the pandemic struck! In the next few WEOs, we saw a massive change and churn in the growth fortunes of the world economies. In its first WEO since the pandemic in April 2020, the IMF sharply revised growth for 2020 to -3 percent for the world as a whole. It was the first time that we saw a contraction in most economies in the world, barring China. In June 2020, the IMF revised the outlook further to -4.9 percent. Since the June 2020 WEO, world growth rates have been revised gradually upwards for all three years: 2020, 2021 and 2022.  Within the world economy, one is seeing an upward revision for both developed and developing countries in 2021 and 2022. While upward revisions may indicate progress, this is not really the case. The higher growth is merely catching up with trends before 2020 and there is a long way to go before we can term the trends as progress.


The IMF has changed the themes of the WEO to reflect on the rapidly changing economic fortunes of its member countries. In January 2020, the WEO’s theme was ‘Tentative Stabilization, Sluggish Recovery?’. The theme changed to ‘The Great Lockdown’ in April 2020 and ‘A Crisis Like No Other, An Uncertain Recovery’ in June 2020. Since then, the themes have been around the slow and difficult recoveries and need for policy support and rapid vaccination. In October 2021, the IMF notes that "global recovery continues but the momentum has weakened and uncertainty has increased". Clearly a period which has been a steep learning curve for the institution.

Given these trends, how does India fare? In April 2020, India’s gross domestic product (GDP) forecast for 2020 was lowered to 1.9 percent  from 5.8 percent in January 2020. Given the stringent lockdown, the first wave hit India later than it did other countries. Accordingly, the growth outlook was revised sharply to -10.3 percent in October 2020. The outlook was raised to -7.3 percent  as the Indian economy was not as adversely impacted as expected.

In 2021, the growth projection was raised from 6 percent in January to 12.5 percent in April, only to be revised lower to 9.5 percent in June; the same projection has been retained in October as well. This is because of the second wave of the pandemic which hit India harder than the first wave did. For 2022, the IMF has raised the growth projection from 6.9 percent  in April 2021 to 8.5 percent in June, a figure it retained in October.

We get a better sense of the above numbers by looking at IMF’s views on India. IMF also organises press briefings after releasing its flagship publications. Apart from the WEO, IMF releases a Global Financial Stability Report and Fiscal Monitor. We get some sense of the Indian economy from these briefings.

In the WEO press briefing, a question was posed on India’s growth forecasts, large fiscal deficit and reforms. IMF Chief Economist Gita Gopinath responded saying the agency had not changed “its growth forecast for this year and next for India”. She added that “India came out of a very, very tough second wave, and that led to a big downgrade in July, but we have no change as of now”.

Gopinath cautioned that as the “virus has not gone yet”, one needs to be careful with respect to the economy.  On the government’s large fiscal deficit, the IMF was of the view that there was room for more targeted spending in case of a third wave. To be sure, the government needs to put in place a credible fiscal road map to lower its public debt to GDP ratio, which is at 90 percent  currently. IMF also noted that India was doing well in terms of the vaccination rate.

In the fiscal monitor press briefing, the IMF echoed the need for a medium-term fiscal road map and also highlighted the Indian government’s establishment of the National Asset Reconstruction Company or Bad Bank as “very promising”.

In the Global Financial Stability Report press briefing, questions were posed on India’s inflation prospects and government reforms. IMF responded that amid improving pandemic situation and economic outlook, inflation remained within the Reserve Bank of India’s target zone. It noted that there has been a “tremendous rally in equity markets in India”. On reforms, it added that RBI has scaled down its monetary stimulus.

To sum up, while the Indian economy seems to be on the mend, there is still uncertainty on the path ahead. The government released quarterly GDP data recently which showed the economy growing by 20 percent in Q1 2021-22 compared to Q1 2020-21, but declined by 17 percent compared to the previous quarter, Q4 2020-21. Within GDP components, private investment, which is the key driver of growth, has not really been firing with a decline of 24 percent in Q1 2021-22 compared to Q4 2020-21. We also saw the second wave in Q1 2021-22 and thus cannot infer much from the data. RBI in its recent monetary policy, also retained its growth projection of 9.5 percent for 2021-22 with an average of 7 percent growth in the remaining three quarters. Going ahead, we will have to look beyond headline numbers, which are anyway going to show elevated growth as the economy emerges from the shock of the pandemic.

Amol Agrawal is faculty at Ahmedabad University.

Views are personal and do not represent the stand of this publication.
Amol Agrawal is faculty at Ahmedabad University.

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