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India’s GDP to shrink 10.3% in FY21, says IMF

The International Monetary Fund (IMF) on Tuesday forecast India’s gross domestic product (GDP) to contract 10.3% in FY21, in a downward revision of its June forecast of a 4.5% drop, reflecting the worse-than-anticipated contraction in economic activity in the fiscal first quarter due to the nationwide lockdown, as well as the rapidly-spreading pandemic.

In its biannual World Economic Outlook, IMF said all emerging market and developing economy regions are expected to shrink this year, including notably emerging Asia, where large economies such as India and Indonesia continue to try to bring the pandemic under control.

“Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second (June) quarter. As a result, the economy is projected to contract by 10.3% in 2020, before rebounding by 8.8% in 2021,” it added.

“Clearly, on the fiscal side, there is more that can be done to provide support to households and firms that have been affected by the pandemic. (There is no need) to tilt the composition of the fiscal support towards direct spending and tax relief measures and to rely less on liquidity support that are clearly important to support the provision of credit in the economy,” said Malhar Nabar, division chief-research department, IMF

Without naming India, IMF chief economist Gita Gopinath said emerging market and developing economies are managing this crisis with fewer resources, as many are constrained by elevated debt and higher borrowing costs. “These economies will need to prioritise critical spending for health and transfers to the poor and ensure maximum efficiency. Where debt is unsustainable, it should be restructured sooner than later to free up finances to deal with this crisis,” she added.

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