Indian GDP Projections during the On-going Gloomy Period

October 23, 2020

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GDP projections by different organisations are one of the most important areas where questions are asked regularly in various recruitment exams. Off late, the pattern has gone a bit conceptual rather than factual. So, we are bringing you a detailed and relevant analysis of GDP projections by three organisations- the International Monetary Fund (IMF), the World Bank, and the Reserve Bank of India (RBI). We will try to cover the area which is relevant to your examination.

IMF’s World Economic Outlook

Recently, the International Monetary Fund (IMF) has come up with its flagship report- the World Economic Outlook. The outlook gave a few important predictions about the overall global economy and various other individual economies, including the Indian economy. Before knowing the details of this year’s report, let us first learn more about the IMF and its World Economic Outlook.

World Economic Outlook

World Economic Outlook is a survey that is conducted twice every year by the International Monetary Fund (IMF). The main objective of the report is to give an analysis of global economic developments and provide predictions for the worldwide economy as well as the economy of several nations. The two publications of this outlook come in April and October.

International Monetary Fund

IMF was created in 1945 with the aim to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty. It has membership from 189 countries, and it is headquartered in Washington, D.C., USA. It is one of the Bretton Woods institutions.

WEO, 2020 Report was released earlier this month. The theme of the report was ‘A Long and Difficult Ascent’. As per the predictions of the outlook, the global economy would contract by 4.4% during the current Financial year. However, in the next Financial Year, it may bounce back by 5.2%.

The outlook took a note of the on-going pandemic and predicted its impact as well. It said that the pandemic might push 90 million more people to the poverty line across the globe. It should be noted that the international poverty line fixed by the IMF stands at $1.90 per day.

The outlook also projected the cumulative losses because of the pandemic to be around $11 trillion over 2020-21.

World Economic Outlook on India

The World Economic Outlook on its projections on the Indian economy stated that during the current FY, it might contract by 10.3%. However, it will be bouncing back at 8.8% growth over the next FY, as projected by the report.

Bangladesh to Surpass India in Per Capita GDP

One of the major projections of the World Economic Outlook that caught the attention of many is the comparison between the Per Capita GDP of India and Bangladesh. The outlook predicts that the per capita GDP of Bangladesh is likely to surpass India’s per capita GDP during the current FY.

As India’s GDP is predicted to fall by 10.3% and Bangladesh is predicted to have a growth of 4%, Bangladesh’s per capita GDP will reach $1888 surpassing India’s figure at $1877.

The Reasons behind India’s Fall

There are four primary reasons for the fall of India’s per capita GDP against Bangladesh’s per capita GDP- Bangladesh’s high industrial sector growth, greater social development, rise in exports, and low population growth. Over the past few decades, Bangladesh has been actively bringing labour and land reforms. In addition to these, it has brought down a paradigm shift into its social sector.

On the other hand, India has not been able to check its exponential population growth, and it is yet to show significant changes in its archaic labour laws. Though it has been improving on the ease of doing business index, the ground reality speaks differently.

World Bank’s Projection

As per the World Bank’s projection, the Indian economy would grow by 9.6% during the current Financial Year. The World Bank also echoed the global view on the aftermath of the pandemic. It said that the income shocks experienced by households and small urban service firms, and nation-wide lockdown are the two main reasons for India’s low growth projection. The World Bank also predicted that the Indian economy would grow by 5.4% during the next financial year.

RBI’s Projection

During the recently concluded 25th MPC meeting of the Reserve Bank of India, the Central Bank projected the Indian economy to be shrunk by 9.5% during the current FY. It also predicted that the growth of the Q1 of the next FY would be 20.6%.

Looking at the current economic situation, the RBI decided to keep the policy rate unchanged and maintain an accommodative stance for the whole year and into the next financial year. Here are the key policy rate details-