Economy heading for bigger Covid-19 pain

In its latest economic outlook, the International Monetary Fund projected a bigger, wider and deeper economic contraction in India in this financial year, citing the severe impact of the Covid-19 pandemic on the country.

According to the global financial body, India's gross domestic product (GDP) is likely to de-grow by a whopping 10.3 per cent in FY21, set to end in March 2021. In its earlier edition of the World Economic Outlook (WEO) released in June this year, it pegged India's GDP contraction at 4.5 per cent. That means the IMF's latest estimate put the GDP contraction higher by 5.8 percentage points than its earlier estimate.

But the IMF is not alone in painting a grim picture about India's economy. The World Bank also made a similar projection a few days earlier, but with a lower contraction rate. It predicted that the country's GDP would shrink by 9.6 per cent in the current financial year. While the Asian Development Bank estimated a negative growth of 9 per cent, the United Nations saw 5.9 per cent de-growth in the Indian GDP for this year.

Of course, IMF and others predicted bigger trouble for the Indian economy after the official economic data for the first quarter i.e. April-June 2020 came out. As per this, the economy shrank by a staggering 23.9 per cent in that three months during which period the country went through a stifling lockdown to contain spread of the pandemic.

If the IMF's prediction comes true, India's economy will take the biggest hit in the entire Asia. And it will take not less than three years for the economy to come back to pre-Covid levels. But the key point in the IMF projections that kicked up a debate is its forecast that due to the severe GDP contraction triggered by Covid, India's per capita income will fall below that of Bangladesh this year. The global financial body has projected that India's per capita GDP in US dollar terms in 2020 will be $1,876.53, which will be lower than $1,887.97 that Bangladesh is likely to achieve by the end of this year. As if that's not enough, IMF's WEO report also said that India's per capita income would rise to $2,729 in 2025, while that of Bangladesh would increase to a higher $2,756 by that year. India's per capita income was nearly 24 per cent more than that of Bangladesh in the past five years. Bangladesh has been doing pretty well on the economic front for the past several years. But surpassing India's per capita income will not be a small achievement for it.

However, this clearly shows the debilitating impact of the Covid pandemic on the Indian economy. Therefore, India needs to pull up its socks and initiate the right corrective measures to cushion the adverse impact of the pandemic and accelerate economic recovery. Otherwise, projections made by the IMF will come true and a lower per capita income than Bangladesh is not a good advertisement for India at a time when it is aiming at a $5 trillion economy.