Indian economy is likely to recover at a faster pace in 2021, the International Monetary Fund (IMF) said in its latest World Economic Outlook report while projecting a smaller contraction in the current fiscal year. The Fund revised India's growth rate for 2020-21 to 11.5% from 8.8% it had projected in its October report, while also revising outlook for the current fiscal's contraction to 8% from 10.3%.
"The notable revisions to the forecast include the one for India (2.7 percentage points for 2021), reflecting carryover from a stronger-than-expected recovery in 2020 after lockdowns were eased," the fund said in its report.
The IMF's latest projection is in line with the Indian government's assessment of a strong revival in the coming months, especially after the recent vaccine approvals. Earlier this month, the Indian drug regulator gave emergency use approval to vaccines by AstraZeneca and Bharat Biotech. The government has started vaccinating healthcare workers and plans to inoculate over 30 million people in the coming months.
The vaccine approvals coupled with government measures have raised hopes of a sharp turnaround later this year. The IMF expects the global economy to grow 5.5 percent in 2021 and 4.2 percent in 2022. "The global growth contraction for 2020 is estimated at -3.5 percent, 0.9 percentage point higher than projected in the previous forecast reflecting stronger-than-expected momentum in the second half of 2020," the IMF said.
The optimism rests on broad availability of vaccines in advanced economies and some emerging market economies by summer 2021 and across most countries by the second half of 2022.
The IMF, however, warned that delays in vaccine rollout, widespread hesitancy in inoculation, shorter-than anticipated immunity from the vaccines could be a downside risk to recovery. It adds that winding down of policy support before economic recovery could further hurt global growth.
"If policy support is withdrawn before the recovery takes firm root, bankruptcies of viable but illiquid firms could mount, leading to further employment and income losses," the IMF said.