## India – Economic Outlook and Policy Priorities

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### Context: India’s global role
- India contributes 11 percent to global GDP growth in 2021 (based on GDP PPP weights).
- Global contributions highlighted:
  - Air travel bubbles and border trade support regional connectivity and trade.
  - Global leader in vaccine production and important contributor to COVAX.
  - Climate pledge: reach net zero emissions by 2070 (COP26).

*Presented by Luis E. Breuer, Senior Resident Representative, India, Nepal, and Bhutan — IMF Asia Pacific Regional Seminar, December 08, 2021.*

### The COVID-19 shock and epidemiological trajectory
- The spread of COVID-19 caused a prolonged domestic health crisis in India and across the world.
- Visual indicators (reported in the seminar):
  - World daily new cases and deaths; India daily new cases and deaths; active cases in India (time series charts referenced in source).

### Non-economic public health responses
- Containment measures included lockdowns and vaccination campaigns; authorities used the Oxford Stringency Index to compare international containment intensity.
- Vaccine administration and exports:
  - Vaccine exports (in million doses) and domestic vaccinations as of Dec. 06, 2021 (figures charted in source).
  - Vaccine supply breakdown (as presented):
    - Grant, Commercial, COVAX exports: As of May'21 12.7 38.2 19.9 (numbers shown in source formatting).
    - In Oct'21 1.0 ......; In Nov'21 ...... 5.0 (source shows partial monthly export entries).
  - Domestic vaccination coverage (in per cent):
    - Above 18 years: 1st Dose 85.2% ; Fully vaccinated 51.3%
    - Total Population: 1st Dose 60.0% ; Fully vaccinated 35.9%
  - Domestic vaccination counts (in levels):
    - 18-44 years: 1st Dose 0.5 bn ; Fully vaccinated 0.2 bn
    - 45-59 years: 1st Dose 0.2 bn ; Fully vaccinated 0.1 bn
    - Over 60 years: 1st Dose 0.1 bn ; Fully vaccinated 0.1 bn

### Economic policy reaction — Fiscal policy
- Fiscal policy included direct support to vulnerable groups and higher spending for health and infrastructure.
- Fiscal space and stance:
  - There is space and scope for additional fiscal support in FY2021/22.
  - Increase in fiscal space through a credible and clearly communicated medium-term fiscal consolidation anchored around stronger revenue mobilization and greater expenditure efficiency.
  - Improve public financial management (PFM) and fiscal institutions to enhance credibility of the fiscal anchor and commitment to sustainability.

### Economic policy reaction — Monetary policy
- The Reserve Bank of India (RBI) provided significant and appropriate monetary easing through interest rate cuts, liquidity injections, and accommodative forward guidance.
- Maintain accommodative stance and liquidity measures through various instruments to support systemic liquidity and market confidence; as the recovery gains strength, plan for a gradual exit will be needed.

### Other policy measures: financial sector, insolvency, and structural reforms
- Financial sector measures:
  - Borrower relief measures included a six-month moratorium on loan repayments and credit guarantee schemes for MSME loans and bonds issued by NBFCs.
  - MSME credit guarantee scheme was expanded and the loan restructuring scheme for COVID-19-affected borrowers was reintroduced.
  - Ensure proper accounting of problem assets, continue capitalization of financial institutions, facilitate cost- and time-efficient exit of nonviable firms; continue with privatization efforts.
- Insolvency and bankruptcy:
  - Temporary suspension and later lifting of the bankruptcy process; lifting of suspension of corporate insolvency and bankruptcy process and simplification of the insolvency process for MSMEs.
- Other structural reforms:
  - Public sector balance sheet restructuring and infrastructure.
  - Labor market measures with delayed implementation.

### Economic outlook and risks (medium term)
- Recovery in consumption and investment is expected to be gradual.
- Growth projections following a sharp contraction:
  - Growth is expected to rebound to 9.5 percent this year and 8.5 percent in FY2022/23.
- Uncertainty about the outlook remains elevated:
  - Downside risks: COVID-19 and vaccinations; corporate and financial sector risks; fiscal risks; and external uncertainties.
  - Upside risks: A faster near-term rebound and implementation of announced reforms could increase India’s growth potential.

### IMF key policy recommendations
- Fiscal:
  - Use available space for additional support in FY2021/22 while pursuing a credible medium-term consolidation anchored on stronger revenue mobilization and expenditure efficiency.
  - Improve public financial management and fiscal institutions to strengthen fiscal credibility.
- Monetary:
  - Maintain accommodative stance and liquidity measures; plan for a gradual exit as recovery strengthens.
- Financial sector:
  - Ensure proper accounting of problem assets; continue capitalization of financial institutions; facilitate efficient exit of nonviable firms; continue privatization efforts.
- External policy:
  - Two-way exchange rate flexibility as the main shock-absorber.
- Structural reforms:
  - Build on ongoing reforms to remove bottlenecks to growth, including through further trade and investment liberalization, effective privatization, and improving education outcomes.

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_Source: https://www.imf.org/-/media/files/oap/oap-home/2021/asia-pacific-regional-seminar-december-2021-rv.pdf_