Most of the support
“This is an unusual emergency. But we do believe that India, despite its limited fiscal space, could provide more above the line support. Some in the government are worried about retaining some policy power if there is a second wave (of virus infection). We do see scope for further fiscal support, as well as we still believe there could be potential for further monetary policy support as long as inflation continues to fall as we expect,” Salgado said at a webinar organized by NSE and IMF on the world economy in Covid times and beyond.
According to Salgado, it is important that as soon as the crisis is over, India must urgently return to a fiscal consolidation path. He cited credit rating agencies that have said they would look through Covid crisis, but their concern is that India must ensure that growth for the medium term remain high, and that there should be fiscal consolidation after the present crisis.
IMF expects India’s growth rate to contract sharply to a negative 4.5 per cent for 2020. This was revised in June from its earlier estimate of 1.9 per cent.
“This downward revision reflects extended lockdown, which was more than expected, and the spread of virus, which has not been contained yet unfortunately,” said Changyong Rhee, Director of the Asia and Pacific Department at the IMF.
The growth in Asia will also be hamped substantially, but importantly, IMF expects the output losses due to Covid-19 to be permanent. “Why we are saying is that the growth rate by the end of 2022 will be 5 per cent lower than what was predicted before the crisis. If you exclude China, the output loss would be much larger for other Asian economies,” said Rhee in the webinar.
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