After IMF’s Bangla parallel, Moody’s paints dismal picture of stimulus

Moodys’ report on Thursday says the small scale of the stimulus ‘highlights limited budgetary firepower to support the economy during a very sharp contraction’

coronavirus, COVID-19, India, Economy, Supply chain
On the IMF’s Bangladesh projection, the government took pains to assert that India’s Gross Domestic Product (GDP) is 11 times that of Bangladesh in 2019. Representational image: iStock

A day after an IMF report projected that Bangladesh is set to overtake India in terms of per capita income, the Moody’s Investors Service on Thursday (October 15) said India’s recently announced demand stimulus measures worth ₹46,675 crore or 0.2% of GDP highlight the country’s “very weak fiscal position” and will provide limited support to growth.

On the IMF’s Bangladesh projection, the government took pains to assert that India’s Gross Domestic Product (GDP) is 11 times that of Bangladesh in 2019. Playing down the IMF projections, sources said that under the Modi government, the per capita GDP has increased from ₹83,091 in 2014-15 to ₹1,08,620 in 2019-20, representing an increase of 30.7 per cent.

The GDP had increased by 19.8 per cent during the second term of Congress-led UPA, the people cited above added.

In 2019, India’s GDP in Purchasing Power Parity (PPP) terms was 11 times more than that of Bangladesh while the population was eight times more, government sources said.

In PPP terms, India’s per capita GDP in 2020 is estimated by IMF at $6,284 as compared to $5,139 for Bangladesh, according to the sources.

Such assertions came after Congress leader Rahul Gandhi took a jibe at BJP-led government at the Centre on Wednesday saying it’s their achievement in six years.

Related news: India to go below Bangladesh in per capita GDP, says IMF

Moody’s Investors Service said on Thursday that notwithstanding the fiscal prudence of the measures, the small scale of the stimulus “highlights limited budgetary firepower to support the economy during a very sharp contraction, a credit negative. The agency has assigned India the lowest investment grade with a negative outlook.

“While the latest stimulus will spur consumer spending over the near term as coronavirus-related restrictions continue to be eased and India’s festive season begins, the support to growth will be minimal. The government expects the new stimulus to add around 0.5% of GDP – a small boost compared with the 11.5% drop in real GDP that we forecast in fiscal 2020,” Moody’s said.

However, Moody’s expect Indian economy to rebound to 10.6% in FY22, reflecting the comparison with the low GDP levels of FY21 as economic activity gradually normalizes.

The IMF, too, said in its latest ‘World Economic Outlook’ report that India is likely to bounce back with an impressive 8.8 per cent growth rate in 2021, thus regaining the position of the fastest growing emerging economy, surpassing China’s projected growth rate of 8.2 per cent.

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