- The latest edition of the International Monetary Fund’s (IMF) World Economic Outlook has cut its 2021 growth forecast for India to 9.5% from 12.5% estimated earlier in April 2021.
- While re-calibrating its forecast IMF considered two major factors which are access to vaccines and risk of new Corona-variants.
Important points:
- Indian economy is expected to grow by 9.5% in 2021 and 8.5% in 2022 (larger than the 6.9% it had projected in April).
- In 2020, India’s economy witnessed an estimated contraction of 8%.
- The IMF has cut its growth forecast because of the Covid-19 Second Wave that hit the recovery momentum, damaging consumer confidence and rural demand.
- Retained its global growth forecast at 6% for the year 2021, and it is expected to grow at 4.9% for the year 2022.
- In 2020, the global economy contracted by 3.3%
- Revised up its predictions of global trade volume growth by a sharp 130 bps for 2021 to 9.7% and 50 bps for 2022 to 7%.
- India is set to benefit from an expected rise in global trade prospects once its supply side gains traction.
Suggestions:
- Emerging markets should prepare for possibly tighter external financial conditions by lengthening debt maturities where possible and limiting the buildup of unhedged foreign currency debt.
- Central banks should avoid premature tightening policies when faced with transitory inflation pressures but should be prepared to move quickly if inflation expectations show signs of de-anchoring.
- Fiscal policy should continue to prioritize health spending, including on vaccine production and distribution infrastructure, personnel, and public health campaigns, to boost take-up.
- Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
International Monetary Fund
- The IMF was set up along with the World Bank after the Second World Wave to assist in the reconstruction of war-ravaged countries.
- The two organisations were agreed to be set up at a conference in Bretton Woods in the US. Hence, they are known as the Bretton Woods twins.
- Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. India joined on 27th December, 1945.
- The IMF’s primary purpose is to ensure the stability of the international monetary system — the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
- The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT