India faces the biggest contraction of major emerging markets in the wake of the coronavirus pandemic.
The Washington-based lender, in its World Economic Outlook report, said “revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter”.
With these projections, India will be the third-poorest country in South Asia. Pakistan and Nepal are will be only countries with lower GDP. Bangladesh, Bhutan, Sri Lanka and Maldives would be ahead of India. The IMF predicted that Sri Lanka will be the second-most-affected after India. Sri Lanka’s per capita GDP is expected to shrink 4.6% in the current calendar year.
The number of coronavirus cases is still rapidly rising in India, Maldives and Nepal. The IMF said the infection was continuing to spread in large countries, especially where economies are far more dependent on hard-hit sectors including tourism and commodities as well as on remittances and other sources of external finance.
“All emerging market and developing economy regions are expected to contract this year, including notably emerging Asia, where large economies, such as India and Indonesia, continue to try to bring the pandemic under control,” the IMF report said.
The lockdowns imposed by the Narendra Modi government on March 25 was the world’s largest, causing the economy to contract by a record 23.9% in the April to June quarter.
Gita Gopinath, the IMF’s chief economist, said the organisation has “significantly downgraded” India’s growth for the fiscal year 2021. “The hit to the economy has been large and pretty much broad-based,” she added. “You saw that in the April, May, June months, so this has been a very hard hit.”
Malhar Shyam Nabar, division chief of research department at IMF, said more measures can be taken by the government to provide support to households that have been affected by the pandemic. “We think that there is room to recalibrate and to provide more direct relief and spending support, which could have a first order impact on preventing even worse outcomes,” Nabar said.
Gopinath also said the coronavirus is resurging with localised lockdowns in place. “Now, if this worsens and prospects for treatments and vaccines deteriorate, the toll on economic activity would be severe and likely amplified by severe financial market turmoil,” she added.
Economists said Bangladesh’s economic growth has been supported by its fast-growing export sector and a steady increase in rate of savings and investment in the country, Business Standard reported. Meanwhile, India’s exports have fallen in recent years, while savings and investment have also simultaneously declined.
Five years ago, India’s per capita GDP was nearly 40% higher than Bangladesh’s, according to the newspaper. Dhaka’s GDP grew at a compound annual growth rate of 9.1%, in comparison to India’s 3.2% growth during the last few years. This has allowed the country to close the economic gap with India.
Congress leader Rahul Gandhi, who has been a vocal critic of Prime Minister Narendra Modi’s handling of the economy, tweeted: “Solid achievement of 6 years of BJP’s hate-filled cultural nationalism: Bangladesh set to overtake India.”