Room for more fiscal support in India in near term given severity of economic situation: IMF

A top IMF official has said that there is room for more fiscal support in India in the near term, particularly for vulnerable households and SMEs, given the severity of the country’s economic situation due to the COVID-19 pandemic.

Vitor Gaspar, Director of the International Monetary Fund’s Fiscal Affairs Department, told PTI that a complete and successful implementation of the existing support measures (in particular, food provision to households) is of paramount importance.

Given the severity of the economic situation, in the near-term there is room for more fiscal support, particularly for vulnerable households and SMEs (Small and Medium-Sized Enterprises), he said.

Over the medium-term, India will continue to have a very limited fiscal space, and a credible and well-communicated consolidation plan will be urgently needed once the coronavirus pandemic subsides, Gasper said.

The economic impact of the COVID-19 in India has been substantial and broad-based, he said, adding that high frequency indicators point to a sharp decline in economic activity, as reflected in the industrial production, business sentiment (in the purchasing managers index), vehicle sales and trade.

In the June World Economic Outlook (WEO), growth in fiscal year 20/21 was revised down to -4.5 per cent, he said.

The downward revision compared with the April WEO was driven primarily by the continued rise in the number of COVID-19 cases in India.

This led the International Monetary Fund to make specific two adjustments. First, the assumed length of the partial lockdown was extended somewhat. Second, and more important, we made more conservative assumptions about the speed of recovery given that the health crisis has not yet been contained, Gasper said in response to a question.

He said that the near-term growth outlook in India continues to be clouded by the global and domestic slowdown and uncertainties relating to the evolution of the coronavirus pandemic.

According to the senior IMF official, India’s general government fiscal deficit is projected to reach 12.1 per cent of the GDP in fiscal year 20/21, primarily due to weak tax revenues, as well as a denominator effect associated with the negative projected nominal GDP growth — as with all other macro variables, estimates are highly uncertain.

Consistent with this, and the deterioration in economic activity, India’s public debt-to-GDP ratio is projected to reach about 84 per cent this fiscal year, Gasper added.

According to Johns Hopkins Coronavirus Resource Center, the contagion has infected over 12 million people and killed more than 554,000 across the world.

The US is the worst affected country with over 3.1 million cases and more than 1,33,000 deaths. India’s COVID-19 caseload stands at 7,93,802 with 21,604 deaths.

The COVID-19, which originated in China’s Wuhan city in December last year, has also battered the world economy with the International Monetary Fund saying that the global economy is bound to suffer a “severe recession”.

Scientists are racing against time to find a vaccine or medicine for its treatment.