While everyone is slowing down in terms of economic growth, India has not been spared but is doing better and is in a relatively bright position compared to other countries, a senior official said on Tuesday. of the International Monetary Fund (IMF).
Just look at the global situation right now, which is the overriding issue, IMF Asia and Pacific director Krishna Srinivasan said, adding that growth “is slowing in many parts of the world even as inflation increased”.
“We expect countries representing 1/3 of the global economy to go into recession this year or next. And inflation is rampant. So that’s the global story,” Srinivasan told PTI in an interview.
“Almost all countries are slowing down. Against this background, India is doing better and is in a relatively favorable situation compared to other countries in the region,” Srinivasan said.
The IMF on Tuesday forecast in its World Economic Outlook a growth rate of 6.8% in 2022 against 8.7% in 2021 for India.
The projection for 2023 drops further to 6.1%. More than a third of the global economy will contract in 2023, while the three biggest economies – the United States, the European Union and China – will continue to stagnate, he said.
“In short, the worst is yet to come, and for many, 2023 will look like a recession,” Pierre-Olivier Gourinchas, the IMF’s economic adviser and director of research, said in his foreword to the WEO released at the conference. the annual meeting of the IMF and the World Bank.
Now, beyond that, there are three underlying headwinds. One, of course, is the tightening of financial conditions because central banks and Asian economies are tightening to fight inflation.
Second, Ukraine, a war that has driven up food and commodity prices, widening current account deficits. And the third is in the region itself, China is slowing down, he observed.
A combination of these factors reduces the outlook in many parts of Asia, including India.
India has an effect with the drop in external demand. Moreover, within the country, inflation has increased.
“What the RBI has done is they have tightened their monetary policy. Rightly so. They have been in proactive monetary tightening policy,” he said.
“Now what that means is that there has been an impact on domestic demand. You have inflation, which affects consumer demand, and when you try to fight inflation, that in tightening monetary policy, that will affect investment, and so for both reasons, you see some slowdown in India, and that’s why we’ve revised it to 6.8% this year and 6.1% next year,” Srinivasan added.
Observing that the Indian government has an ambitious plan for CAPEX, Srinivasan said the country should pursue it as it would give a boost to domestic demand.
The Indian government, he said, is addressing the impact of inflation on the poor and vulnerable, which is fine.
“They’ve reduced excise taxes, which is across the board. It’s good and bad. It’s good in the sense that it relieves on the price side, but it’s not well targeted. In the context of “limited fiscal space, you We want these measures that mitigate the impact of inflation to be more targeted. We would like more targeted support for the poor and vulnerable. Free rations are one of them,” he said. he declares.
Opening up sectors to greater foreign investment would be a good thing. “What we’ve seen is that in the initial phase of the crisis, you had capital flowing out of India, and then now it’s coming back, trying to attract equity capital into FDI, that would be very well. That’s going to boost things,” he said.
India has made phenomenal progress in digitalization, Srinivasan said. “If you look at the digital public infrastructure in India, it’s quite amazing. You can leverage digitalization to solve many problems, in the short and long term, to drive growth, in the short and long term, ” he said.
India took a hit in the chin during the delta wave of the COVID-19 crisis, he said. But since then they have come back very strongly in terms of vaccinating a large part of the population.
“About 70% of the population is fully immunized. Vaccinating a country of 1.4 billion people is not an easy task. And they did a very good job there. “using resources to support employment, health care, and the poor and vulnerable. By tackling the pandemic head-on, they have mitigated what could be a significant headwind,” he said. declared.
While the zero COVID strategy has been a drag on the Chinese economy, in India’s case the pandemic has had less of a headwind because they solved it through vaccination.
“They have used their resources wisely. Considering the global context where growth is slowing and inflation is rising, in this context India has done well, to protect growth. not easy, because to maintain the growth prospects, India must pursue this ambitious CAPEX plan,” Srinivasan said.
This, he said, will generate a multiplier effect on the private sector, which can generate jobs. During the pandemic, people lost their jobs, mainly women and young people.
“You have to create an environment where there are more of those jobs. So going back to CAPEX plans, which kind of bring in the private sector, will give the economy a boost. In that sense, I think it’s a good thing,” he said. said.
India is facing severe pressure on its external balance due to rising oil prices. Current account deficits are widening.
Responding to a question, Srinivasan said that some reforms should be carried out in a longer term perspective: agricultural reform, agrarian reform, labor reform.
“They went ahead with agricultural reform. It didn’t work, same thing with land reform. But it has to continue. You have to keep the momentum going to improve your business environment,” he said. declared.
