India’s debt to GDP ratio increased from 74% to 90% during the COVID-19 pandemic, the International Monetary Fund has said.
The Washington-headquartered international lending institution expects the buildup to drop down to 80% as a result of the country’s economic recovery.
Paolo Mauro, Deputy Director, IMF’s Fiscal Affairs Department told reporters at a news conference in Washington on Wednesday, “In the case of India, the debt ratio at the end of 2019, prior to the pandemic, was 74% of Gross Domestic Product (GDP), and at the end of 2020, it is almost 90% of GDP. So, that’s a very large increase, but it is something that other emerging markets and advanced economies have experienced as well.”
The IMF expects that the country’s debt ratio will gradually come down as its economy recovers. “In our baseline forecast under the assumption of healthy economic growth in the medium term, we see debt returning to about 80% over time,” Mr. Mauro said.
Commenting on “healthy economic growth”, an analyst says the country’s GDP is expected to contract by half by 2023.
Mauro mentioned immediate priorities for India –being able to continue supporting people and firms, and, in particular, to focus on supporting the most vulnerable.
The country has announced fresh round of lockdowns to curb the record rise in virus infections, leading to job losses.
On Thursday, a record 200,000 new Covid-19 cases were reported and the financial hub of Mumbai in the State of Maharashtra (the wealthiest and the worst hit by the virus) entered a lockdown.
The western state accounts for about a quarter of the country’s total cases. The total case load reached 14.1 million, only second to the United States, which leads the global tally with 31.4 million cases.
“This virus is more infectious and virulent […] We have 35-year olds with pneumonia in intensive care, which was not happening last year,” Dhiren Gupta, a pediatrician at Sir Ganga Ram Hospital in New Delhi told Reuters.
“The situation is chaotic.”
The resurgence of Covid-19 is worsening the economic outlook again –jobs last month fell at the quickest pace since September 2020, according to a survey of manufacturers by IHS Markit.
A national lockdown last year had seen millions of migrants heading back to their villages, many of them walking miles without proper food and water.
The latest hit is more severe in urban areas where it’s nearing 10% as local media shows images of workers fleeing cities fearing harsher curbs like last year.
Prolonged and widespread night curfews could possibly lead to “another bout of reverse migration,” said Kunal Kundu, an economist with Societe Generale GSC Pvt. in Bengaluru. “Job creation will remain a challenge.”