The recent edition of World Economic Outlook (half yearly report) has been published by International Monetary Fund (IMF).
What has the report projected?
For India, the Fund has lowered the real GDP growth rate for 2021-22 to 9.5% from the earlier 12.5%.
Its forecast for 2022-23 was 6.9% earlier and has been upgraded to 8.5%.
For India, the medium-range forecasts is up to 2026-27.
The report has cited that the global economic recovery momentum had weakened due to the pandemic-induced supply disruptions.
The dangerous divergence in economic prospects which is due to large disparities in vaccine access, and differences in policy support remains a major concern.
The IMF has become relatively more pessimistic on the Indian rupee versus US dollar (USD) in October.
It has also noted that the employment growth likely to lag the output recovery
What explains the IMF’s turn for pessimism on the Indian rupee?
The IMF sees the rupee depreciating from Rs.70.9 to Rs.89.4 in 2020-21 against the US dollar by 2026-27.
In April, the implied exchange rate forecast for 2026-27 was Rs.85.8.
So, the US dollar is stronger by 4.2% at the end of 2026-27 as per the October 2021 forecast.
This will lower India’s nominal GDP in USD terms in 2026-27 to $140 billion.
Why recovery in employment may lag the recovery in GDP?
Employment around the world remains below its pre-pandemic levels due to
Reflecting a mix of negative output gaps
Worker fears of on-the-job infection in contact-intensive occupations,
Childcare constraints
Labor demand changes as automation picks up in some sectors
Frictions in job searches and matching
The employment lag output growth in India might be due to the already existing massive unemployment crisis and informal or unorganised sectors
The gap between recovery in output and employment is likely to be larger in emerging markets and developing economies than in advanced economies.
Also young and low-skilled workers are likely to be worse off than prime-age and high-skilled workers, respectively.
What does the IMF call for?
The top priority is to vaccinate at least 40% of the population of every country by the year-end and 70% by the middle of next year.
The IMF called for stronger commitments at the United Nations COP26 in Glasgow and said advanced economies needed to deliver on their $100-billion-per-year international climate finance pledge to developing countries.
It has asked the Group of Twenty (G20) to speed up the restructuring of unsustainable debt of poorer countries.
The IMF has earlier cited that there’s still room for the Government of India to provide more support without disturbing the fiscal deficit.
There need to be a credible medium-term strategy for India to reduce the debt-to-GDP ratio to make room for future development and infrastructure needs.
