On Wednesday, the International Monetary Fund (IMF) said India’s economy will contract 4.5 per cent in FY21 than earlier estimated an optimistic forecast in April of 1.9 per cent growth in FY21, quoting a prolonged lockdown period and much slower economic recovery.
In the World Economic Outlook (WEO) forecast report, the IMF said, “Indian economy is projected to contract by 4.5 per cent following an extended period of lockdown and slower recovery than anticipated in the month of April.”
Meanwhile, growth revival is now changed to 6 per cent in FY22 from 7.4 per cent as estimated earlier in the month of April.
After IMF released its WEO forecast in April, the number of corona cases rapidly increased in many countries including in India followed by stringent lockdown for a long period, thus resulting in even larger disruptions to economic activity and massive job losses and pay cuts than forecast. However, India has lifted almost all mobility and business restrictions to bring back the economy to normalcy.
Most of the forecasting agencies now expect that India’s economy will contract between 3-5 per cent in FY21 with a varied projection of a bounce-back in FY22. On Wednesday, India Ratings projected India’s economy to contract by 5.3 per cent in FY21, expecting for a rebound in the range between 5per cent -6 per cent in FY22, facilitated by a lower base in the preceding year and return of gentle normalcy in the domestic as well as the global economy.
“The disorder caused due to the coronavirus pandemic uncoiled with such a velocity that the disruptions in the production, breakdown of supply chains/trade channels and total washout of activities in aviation (some activities have started now), tourism, hotels, and hospitality sectors won’t allow the economic activity to return to normalcy throughout FY21. As a result, besides contracting for the entire year, GDP will shrink in each quarter in FY21,” it further said.
At present IMF expects the global economy to contract by 4.9 per cent in FY20 compared with its earlier estimate of 3 per shrinkage, the revival is expected to be slower than its previously forecast as the coronavirus outbreak had a more negative impact on the economic activity in the first half of the year than anticipated.