India needs more public spending for further growth: Gita Gopinath

Gopinath said the current escalation in prices in the energy sector may come down by Q2CY22, while warning that any further spike in energy prices may lead to headline inflation in the future

Gita Gopinath
Gita Gopinath, the chief economist of International Monetary Fund (IMF)

International Monetary Fund (IMF)’s chief advisor Gita Gopinath has said that public investment, especially in the health sector and for the “vulnerable populations” of India was crucial for the country’s economic growth and will remain a driving factor in the long term.

Gopinath’s statement comes a day after the IMF predicted the Indian economy, which had slumped to a low of 7.3 per cent due to the COVID-19 pandemic, to grow by 9.5 per cent in 2021 and 8.5 per cent in 2022.

In an interview to CNBC-TV18, the economist said listed firms in India’s manufacturing and services sectors are doing well even though the rate of recovery is sluggish.

“It is an incomplete recovery, but a recovery nevertheless as listed firms in India were doing better than expected…Indian MSME sector continues to be in distress. We see grounds for more fiscal push in India,” she said.

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Gopinath said the current escalation in prices in the energy sector may come down by Q2CY22, while warning that any further spike in energy prices may lead to “headline inflation” in the future.

“We had a downgrade for India in July because of a catastrophic second wave,” she said.

In another interview with NDTV, Gopinath said India’s feat of having vaccinated half of its population would be helpful for the economy. Pointing how several countries have failed to meet the 40 per cent target of vaccination, she said in the US, for instance, vaccine hesitancy has had a “spin-off” effect on the economy.

“We saw consumption flat-lining in the US. That’s one of the factors for downgrading the US. The main factor driving that is Delta variant – which stopped the momentum and disruption in supplies,” she said.

She, however, stressed that India needs to be wary of inflation in the face of the pandemic.

“Oil prices are going up, power outages, energy prices that’s going up. But the key aspect is to ‘address the pandemic, keep the confidence high (through more vaccinations)’ ” she said.

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