CONTEXT
The International Monetary Fund Deputy Chief Economist, Petya Koeva Brooks, in an interview to PTI on Friday also made a strong case for an additional economic stimulus to address the impact of the pandemic on the country’s economy.
Why in news?
India, which is projected to grow at an impressive rate of 12.5 per cent this year, needs to grow at a much faster pace to make up for the unprecedented contraction of eight per cent that it clocked during the COVID-19 pandemic in 2020, according to a senior IMF official.
Detailed Analysis
- The International Monetary Fund Deputy Chief Economist, Petya Koeva Brooks, in an interview to PTI also made a strong case for an additional economic stimulus to address the impact of the pandemic on the country’s economy.
- When it comes to India there was a major collapse of output last fiscal year and the number as mentioned is eight.
- The strong rebound this year with projected growth of 12.5 for fiscal year 21-22 and we are seeing also high frequency indicators including PMI (Purchasing Managers’ Index), and trade and more mobility indicators which give us a sense that there is continued recovery in the first quarter of this year.
- There are some recent emergencies of the new variants in the localised lockdowns that are seen as one of the threats to this recovery.
- On the recovery itself, when it comes to level in terms of the level of output, we are expecting that level to return to the pre-crisis one from 2019 to this fiscal year.
- The gap, which is eight per cent of GDP is significantly larger than what it is for the world as a whole.
- For the world as a whole it’s about three (per cent), which is another way of saying that even though in the near term we have this real rebound, there’s still scope in the coming years to see higher growth which would reduce and hopefully, eliminate that scarring, which we are currently expecting.
- Noting that the Indian government took several steps to address the COVID-19 crisis.
- What makes sense is to maintain the focus on having that coordinated policy response because this is what’s going to prevent the long-term damage to the economy.
- Providing that support to small and medium-sized firms as well as vulnerable houses would be particularly important, she said.
- IMF very much welcomes the measures that were announced by India during its budget.
- It is particularly supportive of maintaining the accommodative fiscal stance and also emphasising expenditures on health and infrastructure.
- Prominent among them are that there would not be a withdrawal of fiscal stimulus at the general government level and also that state governments would be given the temporary flexibility to go over their budget ceilings.
- And last, but not least, the fact that some of the other budget items on food subsidies were actually brought into the budget. Overall, the IMF is very supportive of this focus on growth.
- Focusing that stimulus again on the most vulnerable is something that makes sense to us.
- Taking measures in that area would be particularly helpful as well as making sure that there’s priority spending on education, the economist noted.
- Ensuring that there is a very concrete medium-term fiscal framework is an area where we can see some room for more work in that area.
- Maintaining the accommodative monetary policy stance makes sense.
- Need to essentially have targeted support for households and for the firms that have been most affected is the most efficient and sensible way to provide that support.