Gita Gopinath on India's 11.5% projected growth

The 11.5% growth projected by the International Monetary Fund (IMF) for India in fiscal 2022 will largely be mechanical, as the economy normalises from an estimated 8% contraction in the ongoing fiscal year, IMF chief economist Gita Gopinath said on Thursday.

Days ahead of the Budget, Gopinath suggested that India continue its direct cash support schemes to the poor in 2021, including the expanded employment guarantee scheme, while prioritising public infrastructure spending.

“The 11.5% number comes from the fact that you’re coming off what we estimated as an 8% collapse the previous year. So, a lot of it is pretty mechanical,” she said, giving details of assumptions for the IMF’s growth projections at the 9th NCAER CD Deshmukh Lecture on Thursday.

In its latest update of the World Economic Outlook released on Wednesday, the IMF had raised India’s growth forecast for FY22 from 8.8% estimated earlier.

“Even if there’s literally no further growth that happens after that recovery quarter-on-quarter, you have a very large number in terms of what the growth rate is going to be year-on-year for the year as a whole,” Gopinath said.

India’s GDP contracted by a massive 23.9% in the quarter ended June 2020 owing to the pandemic-induced lockdown, followed by a milder contraction of 7.5% in the quarter ended September 2020.

According to the advance estimate released earlier this year, India’s statistics offices expects a 7.7% contraction for the full FY21.

“Over two years, we are looking at India being about 2-3% bigger when it’s usually 12% bigger at this time. So, we still have a 9-10% gap that still has to be filled,” Gopinath said while highlighting the country’s output loss due to the pandemic.

At an 11.5% rise, the GDP in FY22 will only be 2.6% more than that of FY20.

Gopinath said India should continue to support vulnerable groups.

The “in-kind and in-cash support” which had expired in 2020, she said, would address the inequality between skilled and low-skilled labour workforce which would be starker coming out of the pandemic.

“We see scope for India to do more in providing direct support to poorer households and small firms,” she said.

She added that reduction of wasteful expenditure, making GST collection systems more effective and creating a credible divestment plan would give more confidence to markets.

India should also focus on creating an efficient insolvency resolution mechanism and provide ease of raising capital besides looking at capital infusion to address a post-pandemic sharp increase in bankruptcies and non-performing loans, she said.

Global policy priority should be to ensure wide vaccine availability to all countries to prevent divergence in recovery, according to Gopinath.

“The number one policy issue that needs to be addressed is to fix the unequal access to vaccines,” she said, adding that the hurdles of vaccine hesitancy and logistics should be next in line.

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