It is unnerving to see what is happening all around us in India. The second wave of Covid 19 has been ferocious and severely impacted Indians. The daily new cases recorded have been the highest in the world for the past few days. The economy is likely to be affected as well though the forecasts by leading international financial institutions keep the hope alive. We pray that the pandemic is controlled in the coming weeks with vaccination being opened up or age groups of 18 -45 as well from May 01, 2021.

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IMF Economic Forecast – The International Monetary Fund (IMF) recently projected an impressive 12.5 per cent growth rate for India in 2021, stronger than that of China, the only major economy to have a positive growth rate last year during the Covid-19 pandemic. In its World Economic Outlook report titled ‘Managing Divergent Recoveries’, it was mentioned that the Indian economy is expected to grow by 6.9 per cent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 World Economic Outlook (WEO), as reported by Asia Law Portal, reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working. The projections for 2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year, the report said.

World Bank – The World Bank recently released its ‘South Asia Vaccinates: South Asia Economic Focus, Spring 2021’. As per the report, India’s economy is expected to grow more than 10 percent in the fiscal year 2021-22 — a substantial upward revision of 4.7 percentage points from January 2021 forecasts, as reported by Asia Law Portal. Government consumption is expected to rise by 16.7 percent in 2021, propped by India’s strong fiscal stimulus. The report further mentions that given the significant uncertainty pertaining to both epidemiological and policy developments, real GDP growth for FY21/22 can range from 7.5 to 12.5 percent, depending on how the ongoing vaccination campaign proceeds, whether new restrictions to mobility are required, and how quickly the world economy recovers. As economic activity normalizes, domestically and in key export markets, the current account is expected to return to mild deficits (around 1 percent in FY22 and FY23) and capital inflows are projected to be buoyed by continued accommodative monetary policy and abundant international liquidity conditions. The Covid-19 shock will lead to a long-lasting inflexion in India’s fiscal trajectory. The general government deficit is expected to remain above 10 percent of GDP until FY22. As a result, public debt is projected to peak at almost 90 percent of GDP in FY21 before declining gradually thereafter.

Asian Development BankThe Asian Development Bank (ADB) projects India’s gross domestic product (GDP) will rebound strongly by 11.0% in fiscal year (FY) 2021 ending on 31 March 2022 due to continued economic recovery boosted by increased public investment, vaccine rollout, and a surge in domestic demand. The forecast assumes that vaccines are deployed extensively across the country and the second wave of the coronavirus disease (Covid-19) pandemic is contained.

In its latest flagship economic publication, Asian Development Outlook (ADO) 2021, ADB forecasts India’s economic growth to moderate to 7.0% in FY2022 as base effects disappear. The economy is expected to have contracted by 8.0% in FY2020 in line with the government’s second advance estimate. “India’s economy faced its worst contraction in FY2020 due to the Covid-19 shock. With large government stimulus and the ongoing vaccination drive, we expect economic activity will continue its recovery started from the third quarter of FY2020 and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services,” said ADB Country Director for India Takeo Konishi. “The government’s boost to public investment through its infrastructure push, incentives for manufacturing, and continued support to boost rural incomes will support India’s accelerated recovery.” The detailed report noted that new Covid-19 cases daily, having bottomed out at 11,000 in mid-February, surged again, surpassing 200,000 in mid-April. To contain this second wave of Covid-19, the vaccine rollout may need to accelerate further, which would require more vaccine supply, a strengthened regulatory regime for vaccine approval, and heightened private sector participation. While containing Covid-19 is still key to economic recovery, global experience suggests that economic impacts from subsequent waves are smaller than from the first if nationwide lockdowns are avoided.

Increase in FDI – The Government of India issued a press release relating to Foreign Direct Investment (FDI) inflows. It mentioned that measures taken by the Government on the fronts of FDI policy reforms, investment facilitation and ease of doing business have resulted in increased FDI inflows into the country as India has attracted total FDI inflow of US$ 72.12 billion during April to January, 2021. It is the highest ever for the first ten months of a financial year and 15% higher as compared to the first ten months of 2019-20 (US$ 62.72 billion). Japan has been leading the list of investor countries to invest in India with 29.09% of the total FDI Equity inflows during January, 2021, followed by Singapore (25.46%) and the U.S.A. (12.06%)

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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