Indian economy to contract by 10.3% in 2020; worst contraction on record: IMF

The Indian economy, severely hit by the coronavirus pandemic, is projected to contract by a massive 10.3 per cent this year, the International Monetary Fund (IMF) said on Tuesday (October 13).

However, 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 Chinas projected growth rate of 8.2 per cent, the IMF said in its latest World Economic Outlook report.

Released ahead of the annual meetings of the IMF and the World Bank, the report said global growth would contract by 4.4 per cent this year and bounce back to 5.2 per cent in 2021. America’s economy is projected to contract by 5.8 per cent in 2020 and grow by 3.9 per cent the next year, the IMF said.

China is the only country, among the major economies, to show a positive growth rate of 1.9 per cent in 2020, it said.

The IMF in its report said that revisions to the forecast are particularly large for India, where the Gross Domestic Product (GDP) contracted much more severely than expected in the second quarter. “As a result, the economy is projected to contract by 10.3 per cent in 2020, before rebounding by 8.8 per cent in 2021,” it said.

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In 2019, India’s growth rate was 4.2 per cent.

According to the IMF, India is among those likely to suffer the greatest damage from global warming, reflecting its initially high temperatures. For India, the net gains from climate change mitigation-relative to inaction-would be up to 60-80 per cent of GDP by 2100.

While estimates of losses from climate change are somewhat smaller for colder regions (for example, Europe, North America, and east Asia), these are likely underestimations as they do not include a number of damages (for example, rise in sea levels, natural disasters, damage to infrastructure from thawing of permafrost in Russia) and negative global spillovers from large economic disruptions in other parts of the world.

Last week, the World bank said India’s GDP this fiscal is expected to contract by 9.6 per cent. “Indias GDP is expected to contract 9.6 per cent in the fiscal year that started in March,” the World Bank said in its latest issue of the South Asia Economic Focus report.

“The situation is much worse in India than we have ever seen before,” Hans Timmer, World Bank Chief Economist for South Asia, told reporters during a conference call last week. “It is an exceptional situation in India. A very dire outlook,” he said. There was a 25 per cent decline in GDP in the second quarter of the year, which is the first quarter of the current fiscal year in India.

In the report, the World bank said the spread of the virus and containment measures have severely disrupted supply and demand conditions in India.