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Davos 2020: Economic recovery to start in the first half of FY21, according to Gita Gopinath of IMF
January 20, 2020

Davos 2020: Economic recovery to start in the first half of FY21, according to Gita Gopinath of IMF

What began as an idea to bring together political and business leaders to discuss global opportunities and challenges 50 years ago has still today remained the meeting ground of the powerful, the rich and the influential. The World Economic Forum was setup with an endowment of 25,000 Swiss francs and Davos was chosen to play host to the Forum's first meeting. In 1987, the European forum was rechristened as the World Economic Forum in keeping with its aspiration to play a pivotal role in shaping the global narrative. Davos, has been witness to many changes in the global political and economic order. It would be fair to say that it has played a crucial role in pushing for free trade, multilateralism and conflict resolution.

Gita Gopinath, Chief Economist of IMF, told CNBC-TV18 one of the major factors behind downward revision in India's GDP was weakness in credit growth.

Gopinath said: "There is also some part of it that has to do with weakness in rural income growth. We are expecting to see about the first half of fiscal year 2020-2021 is when we should start seeing the recovery happening."

"But, we do have growth going back up to 5.8 percent in the following fiscal. But there are a couple of month's stabilisation and then we should see a recovery."

She said: "I want you to recognise there is a fair amount to stimulus that has come from monetary policy rate cuts and we expect that to feed into the system over the next 12 months."

Gopinath added in terms of priority it has to be how do you resuscitate credit growth, but at the same time making sure that there is not going to be another non-performing asset problem in the future.

"I think that is the tricky balance that government have to hit."

On personal income tax cuts. she said: "On the fiscal side there was already one major reform that was done which was the corporate tax and we think that should affect though of course it takes a while, it is not something that happens immediately."

India have to pay attention to fiscal consolidation, she said. Policies in terms of transfers to the rural area, rural income transfers may help immediately in terms of consumer spending.

On fiscal consolidation Gopinath said: "We always think of fiscal consolidation also from a medium term perspective, so I think it is very important for the government to signal such commitment to fiscal prudence going forward and of course the details of the spending also matters, it is not just what your fiscal deficit is, it is what your spending on that matters."

Speaking on US-China trade deal, she said: "We welcome the phase I deal, but the risks are certainly not off the table. There is a lot more to be done and we hope that this negotiations will be durable, that it will be more comprehensive and more of the tariffs will be rolled back. But, again I think we should welcome this at this current juncture."