IMF sees Indian economy growing at 11.5% in 2021

The 2021 forecast is revised up 0.3 percentage point relative to the previous forecast, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies.

The Fund revised India's growth rate for 2021-22 to 11.5 per cent from 8.8 per cent projected in its October report, while 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 `V’ shaped revival in the coming months, especially after the recent Covid-19 vaccine approvals. 

The vaccine approvals coupled with government measures have raised hopes of a sharp turnaround later this year. 

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 IMF expects the global economy to grow 5.5 percent in 2021 and 4.2 per cent in 2022. 

“After an estimated 3.5 per cent contraction in 2020, the global economy is projected to grow 5.5 per cent in 2021 and 4.2 per cent in 2022. The estimate for 2020 is 0.9 percentage points higher than projected in the October WEO forecast. This reflects the stronger-than-expected recovery on average across regions in the second half of the year. The 2021 growth forecast is revised up 0.3 percentage points, reflecting additional policy support in a few large economies and expectations of a vaccine-powered strengthening of activity later in the year, which outweigh the drag on near-term momentum due to rising infections,” IMF stated in its report. 

The upgrade is particularly large for the advanced economy group, reflecting additional fiscal support—mostly in the United States and Japan—together with expectations of earlier widespread vaccine availability compared to the emerging market and developing economy group, it added.

Emerging market and developing economies are also projected to trace diverging recovery paths.  Considerable differentiation is expected between China — where effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery — and other economies. 

Oil exporters and tourism-based economies within the group face particularly difficult prospects considering the expected slow normalisation of cross-border travel and the subdued outlook for oil prices. As noted in the October 2020 WEO, the pandemic is expected to reverse the progress made in poverty reduction across the past two decades. Close to 90 million people are likely to fall below the extreme poverty threshold during 2020–21.

Consistent with recovery in global activity, global trade volumes are forecast to grow about 8 per cent in 2021, before moderating to 6 per cent in 2022. Services trade is expected to recover more slowly than merchandise volumes, however, which is consistent with subdued cross-border tourism and business travel until transmission declines everywhere.