Amid dire economic forecasts, an urgent govt response is awaited

An economic relief package from the govt is overdue

Ahead of the spring meetings — or, this year, video conferences — of the Bretton Woods institutions, both the World Bank and the International Monetary Fund (IMF) have released provisional outlooks for the year. Coming as they do during the unprecedented slowdown and disruption caused by the Covid-19 and the lockdowns required to combat it, the projections make for uncomfortable reading. The IMF, for example, has downgraded India’s growth in 2020-21 by more than five percentage points since its October 2019 forecast, and by almost four percentage points compared with its January 2020 forecast. It currently projects that growth in the Indian economy for 2020 will be 1.9 per cent, down from 4.2 per cent in 2019. The World Bank’s forecast is only mildly more optimistic, at 2.8 per cent for 2020-21. 

The global and regional forecasts are even direr. The IMF projects world gross domestic product (GDP) will shrink by 3 per cent in 2020, led by a 6.1 per cent contraction in the US and a 7.5 per cent contraction in the euro zone. Even the fast-growing Asean economies are expected to contract. The economic hit from Covid-19 is clearly massive. Within the neighbourhood, the World Bank says that “South Asia will likely experience the worst economic performance of the last 40 years… in the worst case scenario, the whole region would experience a contraction of GDP”. It points out that a concatenation of factors will cause this, though the pandemic lies at the heart of most of them: Tourism revenue will fall, capital flight is occurring, remittances will dry up, consumer and business confidence has cratered, and exports will struggle. 

It is clear that there is much to do if India, the region, and the world are to survive this year in order to bounce back once the pandemic is under control. The IMF and World Bank meetings will have to take up the question of dealing with the capital flight from poorer countries. While India’s external position is relatively sound — partly thanks to the collapse in oil prices — the same cannot be said for many other developing countries. India must be a strong voice for a more active approach towards developing-world indebtedness. The World Bank must also step up as a lender and guarantor. It has already released $1 billion for India’s health care system, but more must be done. The government should also have a plan for absorption of this money. 

A comprehensive economic plan — not a piecemeal relief package — from the government is overdue. While the lockdown has been extended till early next month, India still awaits a clear sense of how the government intends to support its citizens and businesses through this period of uncertainty. The numbers from the multilateral agencies make it clear that the scale of the problem is such that, even if no money can be released immediately, some sense of what the government plans is essential if sentiment is not to go completely off a cliff. An economic working group was supposedly set up weeks ago, but the result of its deliberations, if any, is not certain. In this climate of pervasive risk, the government should provide a measure of certainty. So far, it has not done so to the degree required.