The International Monetary Fund (IMF) published its annual report on October 15, 2021. In its report, it states that, India’s economy is gradually recovering after it was hit hard by two Covid-19 waves.
Key Findings
- IMF however cautioned the authorities against inflationary pressures.
- IMF also recommended a slow reduction in monetary policy support in the light that recovery is gaining ground.
- According to IMF, impact of Covid-19 on investment and human capital might prolong the recovery. It will also impact the medium-term growth.
- Recovery could be faster than expected considering the pace of vaccination and economic reforms.
- Thus, the economic outlook remains clouded due to pandemic-related uncertainties which is contributing towards downside and upside risks.
- Though India benefits from favourable demographics, disruption in access to education & training because of covid-19 pandemic could impact the improvements in human capital.
Projected Growth
- IMF projected India’s economic growth to 9.5 per cent for the financial year 2021-2022.
- It also projected the headline consumer price-based inflation at 5.6 percent.
- Though the inflationary pressures have been elevated, but rate of price rise eased to 5.6 per cent in July 2021. It was within the target of Reserve Bank of India. It was driven by soft food prices and base effects.
- Headline inflation rate decreased to 5.3 per cent in August and 4.3 per cent in September.
IMF report on Fiscal Deficit
As per IMF, contraction in economic activity, lower revenue, and covid-19 related support measures led to a widening of fiscal deficit of Centre to 8.6 per cent of gross domestic product in the financial year 2020-21. The general deficit of Centre and states was at 12.8 per cent in 2020-2021.