India gets biggest GDP downgrade by IMF as coronavirus lockdown bites

India's gross domestic product is forecasted to decline 4.5 per cent in the fiscal year through March 2020. PHOTO: REUTERS

NEW DELHI (BLOOMBERG) - The International Monetary Fund's forecast for India's economy swung from expansion to contraction, marking the sharpest downgrade in projections of the world's main economies.

The Washington-based lender now sees India's gross domestic product declining 4.5 per cent in the fiscal year through March 2021, compared with an April projection of 1.9 per cent growth.

The 6.4 percentage-point downgrade in the forecast is due to "a longer period of lockdown and slower recovery than anticipated in April," the IMF said in an update of its World Economic Outlook report, released on Wednesday (June 24) in Washington.

India imposed one of the world's biggest and strictest stay-at-home rules from the end of March to curb the coronavirus pandemic, easing some of the restrictions recently even though infections continue to surge.

The IMF's projection for India's first full-year contraction in more than four decade is still milder than those of some analysts.

Goldman Sachs Group Inc. is forecasting a 5 per cent decline this year, while Bloomberg Economics' Abhishek Gupta is projecting a 10.6 per cent plunge. The Asian Development Bank also earlier this month downgraded its growth outlook for India, estimating a 4 per cent contraction compared with an expansion previously.

The IMF forecasts the US$2.7 trillion (S$3.8 trillion) economy will recover next year, growing at 6 per cent - lower than April's forecast of 7.4 per cent expansion.

Weaker growth will also weigh on the government's budget.

The IMF is forecasting the combined fiscal shortfall of the federal government and states will reach 12.1 per cent of GDP in the year through March 2021, up from 7.9 per cent in the previous financial year. Overall debt is projected to rocket to 84 per cent of GDP and then rise further to 85.7 per cent next year.

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