Washington: A top IMF official has said that there is room for more fiscal support in India in the near term, particularly for vulnerable households and SMEs, given the severity of the country's economic situation due to the COVID-19 pandemic.
Vitor Gaspar, Director of the International Monetary Fund's Fiscal Affairs Department, told PTI that a complete and successful implementation of the existing support measures (in particular, food provision to households) is of paramount importance.
Given the severity of the economic situation, in the near-term there is room for more fiscal support, particularly for vulnerable households and SMEs (Small and Medium-Sized Enterprises), he said.
Over the medium-term, India will continue to have a very limited fiscal space, and a credible and well-communicated consolidation plan will be urgently needed once the coronavirus pandemic subsides, Gasper said.
The economic impact of the COVID-19 in India has been substantial and broad-based, he said, adding that high frequency indicators point to a sharp decline in economic activity, as reflected in the industrial production, business sentiment (in the purchasing managers index), vehicle sales and trade.
In the June World Economic Outlook (WEO), growth in fiscal year 20/21 was revised down to -4.5 per cent, he said.
The downward revision compared with the April WEO was driven primarily by the continued rise in the number of COVID-19 cases in India.
This led the International Monetary Fund to make specific two adjustments. First, the assumed length of the partial lockdown was extended somewhat.
Second, and more important, we made more conservative assumptions about the speed of recovery given that the health crisis has not yet been contained, Gasper said in response to a question.
Read more:India Inc should come forward and make investment: MoS Finance Thakur
He said that the near-term growth outlook in India continues to be clouded by the global and domestic slowdown and uncertainties relating to the evolution of the coronavirus pandemic.
According to the senior IMF official, India's general government fiscal deficit is projected to reach 12.1 per cent of the GDP in fiscal year 20/21, primarily due to weak tax revenues, as well as a denominator effect associated with the negative projected nominal GDP growth -- as with all other macro variables, estimates are highly uncertain.
Consistent with this, and the deterioration in economic activity, India's public debt-to-GDP ratio is projected to reach about 84 per cent this fiscal year, Gasper added.
According to Johns Hopkins Coronavirus Resource Center, the contagion has infected over 12 million people and killed more than 554,000 across the world.
The US is the worst affected country with over 3.1 million cases and more than 1,33,000 deaths. India's COVID-19 caseload stands at 7,93,802 with 21,604 deaths.
The COVID-19, which originated in China's Wuhan city in December last year, has also battered the world economy with the International Monetary Fund saying that the global economy is bound to suffer a "severe recession".
Scientists are racing against time to find a vaccine or medicine for its treatment.
IMF urges govts to redirect fiscal policy towards resilient sustainable, inclusive growth
The IMF urged the governments across the world to redirect their fiscal policy towards a resilient, sustainable and inclusive growth, noting that the countries can truly escape the great lockdown once effective vaccine and therapeutics against the COVID-19 are widely available.
In a blog post, top IMF officials -- Vitor Gaspar, Director of Fiscal Affairs Department and Indian-American Gita Gopinath, Economic Counsellor and Director of the Research Department -- wrote that the coronavirus pandemic has already prompted an unprecedented fiscal policy response of close to USD 11 trillion worldwide.
“Once effective vaccine and therapeutics against COVID-19 are widely available, we will enter a post-COVID-19 world and truly escape the great lockdown.
“That will only be possible if the international solidarity allows for access to treatment and vaccines for all people, in developed and developing countries alike,” Gaspar and Gopinath said.
They said that at that stage, the governments should redirect their fiscal policy towards a resilient, sustainable and inclusive growth.
“The policymakers should tackle the rising poverty and inequality, as well as the structural weaknesses exposed by the crisis to better prepare for the future shocks,” they wrote.
This includes investing in stronger health systems, better resourced social safety nets and digitalisation. The authorities should actively support climate-friendly investments that promote greener, job-rich and innovation-driven growth, the blog post said.
The fiscal policy must also tackle inequality through spending aimed at a universal access to health and education and progressive tax systems, it said.
Global public debt, fiscal deficits to reach all-time high
A top IMF official warned that the global public debt is expected to exceed 100 per cent of the GDP in 2020-21, and the average overall fiscal deficit is expected to soar to 14 per cent of the GDP in 2020, pointing out that never have public debt and deficits risen so high and so fast.
The steep contraction in output and ensuing fall in revenues along with a sizable discretionary support have led to a surge in the government debt and deficits, Vitor Gaspar, Director of the International Monetary Fund (IMF's) Fiscal Affairs Department told PTI.
“Global public debt is expected to reach an all-time high, exceeding 100 per cent of the GDP in 2020–21, a surge of almost 20 percentage points from a year ago,” he said, adding that the rise in debt is most significant among advanced economies such as the US, Japan and those in Europe.
“Meanwhile, the average overall fiscal deficit is expected to soar to 14 per cent of the GDP in 2020, 10 percentage points higher than last year. Never have public debt and deficits risen so high and so fast,” he said.
These record-high levels of global public debt are, however, accompanied by a record low nominal interest rates, both in the advanced and in emerging market economies, Gasper noted.
And they are expected to stay low in the absence of inflationary pressures. In many cases, this opens a considerable room to maneuver, at a time when fiscal support is needed. In many advanced economies, high debt levels have been accompanied by the declining debt servicing costs, he said.
Still, caution is necessary, Gasper said, observing that many advanced economies face long-term fiscal pressures, especially due to the population ageing, which may weigh on long-term debt sustainability.
Some, emerging market economies may face a costly debt rollover if financial conditions tighten again, like they did in March, the IMF official warned.
And the most vulnerable low-income developing economies, many of which were already facing a high risk of debt distress prior to the crisis, will need sustained support from the international community to ensure that they can respond to the pandemic and contain the rise of poverty and inequality, he said.
(PTI Report)
