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Pre-COVID growth only by 2025

IMF forecast of 11% growth comes with caveat -DVS Advisors

There are various challenges that the economy is set to face such as the NPAs which, if rises as per the projection of the RBI to 12% or 14%, could prove to be a severe stress on the system, says Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors

MUMBAI, Jan 28 (The CONNECT) - While there is a general sense of elation over the IMF revising its forecast for India to 11% for 2021 from the contraction in 2020, there have been cautions that the celebration is too early.

IMF said in its World Economic Outlook that notable revisions to the forecast include the one for India (2.7 percentage points for 2021), reflecting carryover from a stronger-than-expected recovery in 2020 after lockdowns were eased.

Infections and restrictions will soften momentum in early 2021. Third quarter GDP outturns mostly surprised on the upside (Australia, euro area, India, Japan, Korea, New Zealand, Turkey, United States) or were in line with expectations elsewhere (China, Mexico), IMF said.

BizNewsConnect asked Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP, a multinational (India, US, UK, Singapore, Dubai) professional advisory firm offering a range of Tax, Legal, Risk, and M&A Advisory Services for domestic and global businesses of all sizes including Fortune 500 companies.

Divakar said the 11.5% of growth projected for India by IMF is on the backdrop of an 8% decline for 2020, which effectively means that growth of 11.5% is on a lower base.

Further, Divakar points out, the projection is on the basis of three major assumptions that vaccines would be reasonably available, government would continue with its policy support and central bank would continue with its supportive stance.

Above all, the major and more aggressive assumption is that there would not be any disruptions due to any of the new variants.

In the event of these assumptions holding good, India would meet the projections even considering that the growth of 11.5% is on a lower base after a decline of 8%. The GST collections have rebounded to pre COVID levels, raising hope of a sustainable growth in 2021. The important caveat is that IMF expects India to reach pre-COVID levels only in 2025.

There are various challenges that the economy is set to face such as the NPAs which, if rises as per the projection of the RBI to 12% or 14%, could prove to be a severe stress on the system.

The budgetary support, therefore, would be critical in registering growth in 2021.

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