India back to positive growth but Covid-19 still poses a downside risk, says IMF's Gita Gopinath | Exclusive
India has returned to positive growth but Covid-19 still poses a downside risk, IMF's Chief Economist Gita Gopinath tells India Today TV and AajTak News Director Rahul Kanwal in an exclusive interview.
The International Monetary Fund (IMF) has projected an impressive 12.5 per cent growth rate for India in 2021, saying there is a normalisation of economic activity in the country.
India Today TV and AajTak News Director Rahul Kanwal spoke to IMF's Chief Economist Gita Gopinath over the basis of the projection, what lies ahead and many other relevant issues, especially when a second Covid-19 wave is sweeping across the country. Excerpts from the interview:
Q: WHAT GIVES YOU THE CONFIDENCE TO MAKE THAT PROJECTION?
We have a smaller upgrade for 2021. We had 11.5% before and now it's 12.5%. The reason for that was a continued increase in the economic activity, the normalisation, the recovery that we were seeing in terms of high-frequency indicators. That was one part of it. The other part was the February Budget which added about .2 percentage to our growth forecast.
But, again, we have to keep in mind that it's coming off a very large contraction of -8%. And we locked in these numbers around March 5 when we started seeing the second Covid-19 wave in India. We assumed that there would be localised lockdowns just because until you get widespread vaccination, things will not get back to perfectly normal. If, on the other hand, there was a widespread nationwide lockdown, then that would be a downside risk to our forecast.
Q: WHAT KIND OF IMPACT THE SECOND COVID WAVE CAN HAVE ON INDIA'S GROWTH PROJECTIONS?
We had assumed that there would be continued localised lockdowns. The important factor to keep in mind is the connection between the virus lockdowns and economic activity. What we have seen around the world and the situation in India too is that the sensitivity of economic activity to these kinds of containment measures came down. But, again, it's early days. But to be clear, a 12.5% growth is conservative given the contraction of 8% in 2020. So, in terms of sequential growth, quarter-on-quarter growth, it's quite conservative.
Q: HOW DO YOU ASSESS INDIA'S ECONOMIC RECOVERY IN A GLOBAL CONTEXT?
The good news is that India has returned to positive year-on-year growth, it has come up from the depth of recession to a slight positive growth. The point, of course, is that there is still a challenge of covering the gap. The virus poses a downside risk and there is still a distance to go in terms of catching up.
Q: HOW DO YOU COMPARE INDIA'S RECOVERY WITH CHINA'S?
China is quite ahead. It had positive growth in 2020. We have an 8.4% projected this year. It's very close to where it would have been in the absence of the pandemic. So, it had much greater success with containing the virus, a big push through exports that have come in, there is a big boom in the demand of pandemic-related goods and with the global recovery happening, we had an upgrade for China. In the global landscape, the US and China are two countries that do stand out in terms of strengths of recoveries.
Q: HOW REALISTIC DO YOU BELIEVE INDIA'S DISINVESTMENT TARGETS ARE? WHAT DO YOU THINK THE GOVERNMENT SHOULD DO TO ENSURE THAT THESE AMBITIOUS TARGETS ARE FULFILLED?
The Budget really stepped up on the privatisation front, the ambitious targets; something that we have said would be good for India. In terms of intent, I think, this is really stepping up and stepping forward. Of course, this is difficult in any part of the world, these are complicated exercises. You have to ensure there is lots of transparency and you get enough competitive bids so that you don't end up creating another kind of monopoly.
There are many parts to it. It's not easy. This is an important part of revenue-raising for the government. It's important to do other forms of revenue-raising which are through more effective GST implementation and removing subsidy wastage. All of those would also be required to go along with privatisation.
Q: WHAT DO YOU MAKE OF WHAT THE GOVERNMENT IS SIGNALING?
Firstly, it's important for countries to ensure their fiscal stand stays accommodated and you're not tightening fiscal policy in the midst of a crisis and I think India does well on that front. The second thing is, we're still in a crisis and the emphasis in the Budget was mostly on capital expenditures. I think it's important to do more in revenue expenditure that would be used for income transfers to those who are getting hit very hard in this pandemic. Those measures were withdrawn last November. I think it's important to extend them, and spend more on education to reverse learning losses.
The other piece is, a lot of reforms in the farm and labour sectors have been announced. A lot depends on implementation. More would be needed in the financial sector. You have to plan more capital infusion in banks.
Q: HOW DO YOU SEE INFLATIONARY PRESSURE ON COMMODITY PRICES, ESPECIALLY HOW GLOBAL OIL IS PLAYING OUT IN THE INDIAN CONTEXT?
The 30% increase in prices this year for oil comes from the massive contraction in 2020. Over the medium term, the risks to oil prices are more on the downside because as we see more supplies coming up and these cuts are removed; there will be more pressure on keeping the prices low. But in the near term, the risks of oil prices going up are there. It does affect the headline inflation numbers.