IMF lowered India’s growth projection because second wave was catastrophic, says chief economist

India’s growth projections were lowered by the International Monetary Fund because the second wave of the coronavirus pandemic in India was “catastrophic”, unlike in other countries, explained the global body’s Chief Economist Gita Gopinath on Wednesday, NDTV reported.

On Tuesday, the IMF lowered its economic growth projection for India for the current financial year (2021-’22) to 9.5% from the earlier forecast of 12.5% made in April.

Gopinath told NDTV that the IMF had in April flagged the risk of lockdowns during the second wave.

“Those risks did materialise which is why we had the downgrade,” she said in the interview to the news channel. “Also, in terms of [economic] recovery looking forward, we have a very modest recovery as we think the [consumer] confidence will not come back as strongly as it did after the first wave. There is still uncertainty about the next wave.”

Gopinath warned that the growth projection could be downgraded further if the next wave of the pandemic resulted in another set of lockdowns in the country.

India’s Gross Domestic Product contracted by an unprecedented 7.3% in the previous financial year, 2020-’21, hit by the pandemic and a nationwide lockdown that disrupted economic activities. The government had, on several occasions, expressed confidence of a sharp V-shaped recovery in the economy in this financial year.

However, many economic organisations, including the Reserve Bank of India, have revised their growth projections for India to under 10% in the past couple of months.

Gopinath added that an inequity in distribution of Covid-19 vaccines among countries is one of the reasons for divergence of their growth projections. She pointed out that according to the IMF’s latest World Economic Outlook report, advanced economies were expected to show an uptick in their growth rate, while emerging economies were in the negative.

The economist also said the central government needed to provide greater cash support to the poorest in India. She added that the Reserve Bank of India should not directly provide the stimulus. She advised the government to borrow from the market instead.