Following the release of the International Monetary Fund (IMF) report, which predicts that India’s per capita GDP will drop below Bangladesh’s, The Quint’s Editorial Director Sanjay Pugalia on Wednesday, 14 October, spoke to IMF’s Chief Economist Gita Gopinath about how long it might take for the Indian economy to recover.
“Long, because first of all, the health crisis is not over,” answered the IMF chief economist. She then went on to elaborate how COVID-19 has impacted different sectors of the economy.
Gopinath also talked about how most developing economies will take a while before they can reach the level they were at in the year 2019.
“India, like many other countries, won’t get back to 2019 levels before 2022,” said Gopinath.
Gopinath also suggested that India needs to give direct support, and not loans, to low income households and MSMEs.
Pointing out that this year itself 90 million people will be pushed into poverty, Gopinath said “poor and developing countries will face more problems.”
IMF is making a loud case for multilateralism, greater global trade, and the shunning of nationalistic trends, said Gopinath on being asked what was the IMF’s suggestion to world leaders.
They further went on to discuss the economic crisis in India and the role of global geo-politics and trade tensions that will follow the US polls.
What Has India Done Right So Far?
Gita Gopinath explained that the Indian government has taken extensive measures to ensure the economy has not collapsed completely.
“On the fiscal side, there is 7 percent of GDP that is really sizeable. But we need to look at a mix of measures taken which have been. Mostly liquidity, in the form of lending, helping with credit guarantee and much lesser direct spending which is less than 2 percent,” she said.
She said that it is vital that the government announce a number of packages for the public, especially more jobs, for faster recovery.
“Going forward, countries will need to work for more of a social safety net, to reduce inequality. We have seen in many parts of the world, long distance education has not really worked and that is a huge hit to human capital, which has to be remedied. Many of these schemes will be needed for a longer time. So governments will have to find the resources in they budget, for higher spending for health and education.”Gita Gopinath, Chief Economist, International Monetary Fund
‘World Leaders Need to Collaborate to End Crisis’
Sanjay Pugalia quoted the International Monetary Fund earlier, stating that the world will witness extreme poverty, inequality and lasting damage to people’s living standards, and so how governments are reacting to this challenge.
“Countries that have a lot of fiscal space in providing very considerable income support, like in the US, the lost income is more than compensated. That is why you see the fast recovery. But going forward there will be several challenges,” she explained.
Gopinath said that it is imperative that world leaders need to collaborate to end the health crisis.
“The problem is less about science at this point. We will very likely see vaccines, treatment and way better testing, which can help end the pandemic. But the economics is not great,” she said.
‘Global Trade to Collapse by 10 Percent This Year’
When questioned about the geo-political situation and trade tensions between the United States and China, Gopinath pointed out: “There is an increase in the number of restrictions on trade and investments. So there is certainly a trend towards protectionism.”
She advised that for a quicker recovery of the economies, it is important to keep the channels of trade open. Many global leaders and ministries of finance from different countries are having discussions on improving trade relations and financing and devising methods to tide over this crisis.
The IMF Projection
India’s economy is projected to contract by 10.3 percent in 2020-21, the International Monetary Fund (IMF) said on Tuesday, 13 October. This will see India drop below Bangladesh in terms of per capita GDP, NDTV reported, quoting the IMF report.
This will be sharper than the previous estimate of a 4.5 percent decline induced by the coronavirus impact.