The International Monetary Fund’s (IMF) most recent World Economic Outlook has revised India’s projected growth rate for 2021 to 9.5%. This is a decrease from the earlier 12.5% forecast in April 2021. The revision followed considerations related to the availability of vaccines and the potential risks posed by new variants of the novel coronavirus.
Assessing the Indian Economy
The IMF expects that the Indian economy will grow by 9.5% in 2021, which is an upward revision from its April projection of 6.9% growth. What’s more, it anticipates an 8.5% growth rate in 2022. However, this progress follows a significant economic contraction of 8% in 2020. This decrease in projected growth can be attributed to factors such as the Second Wave of Covid-19, which impacted the recovery momentum, consumer confidence, and demand in rural regions.
Projections for the Global Economy
Contrary to its revision for India, the IMF maintains its global growth forecast of 6% for 2021, with a projected increase of 4.9% in 2022. This positive outlook also contrasts starkly with the 3.3% contraction of the global economy experienced in 2020.
Global Trade Volume on the Rise
The IMF revised its predictions for global trade volume growth, forecasting a sharp increase of 130 bps for 2021, bringing the growth rate to 9.7%. It further projected an increase of 50 bps in 2022, resulting in a global trade growth rate of 7%. Given these figures, India stands to gain significantly from enhanced global trade scenarios once its supply side operations gain traction.
Suggestions from the IMF
The IMF proposed several strategies for mitigating financial risk. For emerging markets, these include preparing for tighter external financial conditions by elongating debt maturities where feasible and minimizing the accumulation of unhedged foreign currency debt. To combat transitory inflation pressures, central banks are advised to avoid premature policy tightening but be prepared to respond swiftly if inflation expectations show signs of destabilizing. The institution also recommends continued prioritization of health spending, including vaccine production and distribution infrastructure, staff, and public health initiatives to increase uptake.
About the International Monetary Fund (IMF)
The IMF and the World Bank were established following the Second World War with the goal of aiding in the reconstruction of countries devastated by the conflict. These organizations were agreed upon at a conference in Bretton Woods, USA, and are thus often referred to as the Bretton Woods twins. Created in 1945, the IMF is accountable to its near-global membership of 189 countries, including India, which joined on December 27th, 1945.
The primary directive of the IMF is to ensure stability in the international monetary system, including exchange rates and international payments, allowing countries and their citizens to conduct transactions with each other. Updated in 2012, the Fund’s mandate now includes all macroeconomic and financial sector issues that impact global stability.
IMF’s Reports
The IMF regularly publishes two key reports: the Global Financial Stability Report and the World Economic Outlook. The latter is a survey generally published twice a year, in April and October, analyzing and predicting short to mid-term global economic developments. In response to increasing demand for more frequent forecast updates, the WEO Update is published in January and July, between the two main WEO publications.
